Protection For Mortgage Payments

It is not only important for a borrower to protect the repayment of the outstanding capital balance on their mortgage in the event of death, it is also very important to protect the payments of both the interest and capital against a breadwinner’s loss of earnings.
The loss of an individual’s earned income may typically arise through accident, sickness or redundancy. Regardless of the underlying cause however, the effect can be devastating for the family as a whole which could ultimately lead to the property either being sold or repossessed.
Statistically, the absence of work due to both unemployment and redundancy are, alongside divorce and separation, the major causes of mortgage and loan missed payments and arrears and of course subsequent property repossessions.
There are two main types of protection policies which are designed to provide assistance to a borrower who has for example fallen ill or had an accident preventing them from working. Permanent health insurance (PHI) is commonly used to protect an individual against the inability to work due to accident or sickness and thus provide an income in times of such needs. It is perhaps more common for a borrower to take out ‘ASU’ cover – Accident, sickness or unemployment. An accident, sickness or unemployment policy is generally designed to provide cover over the shorter term.
It is possible to arrange ASU polices in a number of ways. By shopping around independently, by taking out cover provided by a mortgage or secured loan lender or by taking it out through a mortgage or loan broker. Today many accident, sickness and unemployment policies are often branded as Mortgage Payment Protection insurance. This type of insurance contract will usually cover the monthly mortgage payments in full and depending on the quality of the policy, may also provide an additional level of benefit of benefit to cover essential bills.
Although uncommon, it is also possible to arrange Permanent Health Insurance and accident, sickness and unemployment cover in conjunction with one another. In this way, the deferred period of the PHI contract will usually be set at one or two years to coincide with the end of the payment on the ASU policy.
In recent times, the need for borrowers to protect themselves in this area has increased due to the government’s reduction in the level of income support for mortgage interest payments which is a state benefit. There has subsequently been strong lobbying be many within the mortgage industry to make ASU policies compulsory. At the time of writing however this is not the case and most mortgage lenders will only insist on a borrower taking out a suitable Buildings insurance policy as standard.

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