Level of Mortgage Protection Advice please

clarelutwyche

I'm just in the process of sorting mortgages and have a quick question about the level/type of protection I should take out. I've decided I definitely need Life and Critical Illness cover but my financial advisor is suggesting I should also think about Mortgage Payment Insurance which covers my mortgage payments if I have an accident which puts me out of work for a while. Now, I'm not sure whether this is worth it for me. I'm a teacher so am guaranteed 6 months full pay and 6 months half pay if I have an accident which puts me out of work. The policy he is suggesting doesn't pay out for the first year anyway but if I'm going to be out of work for more than a year surely I could sell the property in this time and move in with siblings, parents etc if it was going to be a problem.

What do you think?!

Debt_Free_Chick

I think you're right. However, it looks as if your adviser has done a good job and suggested insurance that will pay out, once your teacher's pay expires. That said, I (and many others) are not keen on so called payment protection. We would prefer to have an Income Protection plan. So instead of insurance that pays your mortgage, you have insurance that pays YOU an income, if you are unable to work due to illness or disability.

you then use that income to pay your bills.

Ask your adviser about this - and think about how much (as a percentage of your current pay) you would need to live on, if you were unable to work.

Martin has an article about Mortgage Payment Protection Insurance here. He suggests it might be worth looking at MPPI to cover unemployment only and then income protection (Permanent Health Insurance) to cover illness or injury.

HTH

dunstonh

THere is Accident, Sickness and Unemployment cover (ASU) which covers you normally for 12 months after a 30 day (some plans vary that) deferment. Or there is permanent Health Insurance (PHI) which covers you if you are unable to work due to accident or sickness after a deferment period you can choose. The policy would pay out until the expiry date or when you can work (varients on that as well as some budget schemes exist). So, you could, with a PHI, have a 6 month deferment and an expiry age of 65.

In your case, the advice seems sound and it appears a PHI is the product that is being referred to. For maximum cover, a split plan could exist that pays out half after 6 months and goes to the full cover amount after 12 months. However, you advisor may not have that option available to him if he isn't whole of market/IFA.

Its only when a claimable event happens that you wish you had it. If you have cover and an event happens, you don't need to sell up and persuade members of the family to put up with your burden (whatever that may be).

One thing to note is that PHI is priced on your age today and is guaranteed to remain at that premium (or have annual increases based on that premium if you choose the indexed option). Often what happens is that as people get older, they see their friends and collegues get ill or die and thats when they think about getting cover. By that time, the cost has gone up because a claim is more likely.

If cost is a concern, you may want to consider the PHI instead of the Critical illness. Should you get a critical illness and have time off work because of it, the PHI will cover you if it goes on longer than the deferment. If not, your employment covers you. If you dont get a critical illness but a long term illness, the CI cover wont pay anything but the PHI will, along with your employment cover.

ASU cover is probably not worth it in your case considering the shortage of teachers. You are only likely to be out of a job on sickness, if you decide to quit or you are sacked. The last two arent covered anyway.

Conrad

clarelutwyche wrote:

I'm just in the process of sorting mortgages and have a quick question about the level/type of protection I should take out. I've decided I definitely need Life and Critical Illness cover but my financial advisor is suggesting I should also think about Mortgage Payment Insurance which covers my mortgage payments if I have an accident which puts me out of work for a while. Now, I'm not sure whether this is worth it for me. I'm a teacher so am guaranteed 6 months full pay and 6 months half pay if I have an accident which puts me out of work. The policy he is suggesting doesn't pay out for the first year anyway but if I'm going to be out of work for more than a year surely I could sell the property in this time and move in with siblings, parents etc if it was going to be a problem.

What do you think?!

Personally I would rather put such money into a Unit Trust ISA. Teachers are usually very well looked after by thier employers / unions. Advisers never take account of the fact many people that are ill somehow find a way and the state (what ever they tell you) will be there to help. For example, I know a guy who says he suffered a work injury (doesnt affect him playing sport ect though!). The state have paid the interest on his mortgage for 10 years and he has a nice comfortable life what with other benefits and cash in hand jobs. His wife also then had a work accident (apparently) and receives benefits and also works for cash. They have holidays abroad, nice cars etc.

They are actually in the process of moving up market to a £300000 bungalow would you beleive.

Go to any supermarket car park. You will see quite a few brand new cars owned by people who are disabled or long - term ill. Talk to some. They are not destitute I assure you.

I used to sell PHI and one thing I was very uncomfortable with was claims. Even when sucessfull claimants were in reciept of benefit they had such benefits cut or stopped once the myriad of state benefits commenced. Also the insurers used to pressurise people to take alternative work and seek as many ways possible to reduce the claim level.

I do have critical illness cover and death cover, however, I might consider only critical illness cover were I expecting to remain a teacher given the generous death in service benefits.

Norwich Union seem to be competetive for critical illness cover. Be certain YOU (not the adviser) completes every question on the application. I recall advisers completing the questionaire with the intent of insuring the policy was speedily accepted. When it came to a claim the clients were at risk due to less than full medical disclosure by the adviser but 'the client had signed' so had no recourse.

Fairdo_2

Conrad wrote:

Personally I would rather put such money into a Unit Trust ISA. Teachers are usually very well looked after by thier employers / unions. Advisers never take account of the fact many people that are ill somehow find a way and the state (what ever they tell you) will be there to help. For example, I know a guy who says he suffered a work injury (doesnt affect him playing sport ect though!). The state have paid the interest on his mortgage for 10 years and he has a nice comfortable life what with other benefits and cash in hand jobs. His wife also then had a work accident (apparently) and receives benefits and also works for cash. They have holidays abroad, nice cars etc.

They are actually in the process of moving up market to a £300000 bungalow would you beleive.

Go to any supermarket car park. You will see quite a few brand new cars owned by people who are disabled or long - term ill. Talk to some. They are not destitute I assure you.

I used to sell PHI and one thing I was very uncomfortable with was claims. Even when sucessfull claimants were in reciept of benefit they had such benefits cut or stopped once the myriad of state benefits commenced. Also the insurers used to pressurise people to take alternative work and seek as many ways possible to reduce the claim level.

I do have critical illness cover and death cover, however, I might consider only critical illness cover were I expecting to remain a teacher given the generous death in service benefits.

Norwich Union seem to be competetive for critical illness cover. Be certain YOU (not the adviser) completes every question on the application. I recall advisers completing the questionaire with the intent of insuring the policy was speedily accepted. When it came to a claim the clients were at risk due to less than full medical disclosure by the adviser but 'the client had signed' so had no recourse.

I cannot believe that you have suggested all of this.

Please refer to what dunstonh stated in his post, as this is far more impartial and is much more accurate.

The guy you know that has claimed on a work injury and is working cash in hand to your knowledge, means he is committing FRAUD and you are an ACCESSORY!

Oh and his wife is doing the same thing!

Looks like they'll both be caught up with no time soon.

Depending on what they are borrowing, it may be possible to borrow money on state benefits alone, but not to the sort of level it seems you are implying.

In effect it looks like you're trying to encourage the notion that crime pays.

Please be careful what you post in future.

As for the supermarket car park. That is one hell of a sweeping generalisation. Are you suggesting that everyone with a disabled badge is out of work and living on benefits. Please bear in mind the Disability Discrimination Act. Also, some people that are unable to work due to ill health/stress/etc would not be in possession of a Disabled badge, so it works the other way too.

As for this chap having been in receipt of benefits for 10 years plus, things change. The Governernment have been trying to promote a self sufficient state and have subsequently been reducing benefits available during that time. Therefore, please do not be so irresponsible to encourage people to rely on the state when you are not in full possession of the facts.

What works for you does not necessarily work for everybody else, so implying that PHI is a waste of time and money is not a responsible way to respond.

You are correct about the fact that some insurance companies will do what they can to assist people back to current or alternative work, mainly in a positive way to get people back to self sufficiency. Yes they will do that in a positive way and they will save money as a result, but would you rather be independent or would you rather be in the hands and control of the state?