Long Run Forms of Mortgage Protection Insurance

Besides life insurance, the main type of mortgage protection insurance is mortgage payment protection insurance (MPPI). This type of mortgage cover will pay for home loan repayments should the policyholder suffer accident, sickness or unemployment (redundancy). MPPI is great for covering short-term illness or injury but policies only last for a maximum of 24 months which leaves mortgage holders with a large gap in protection in the long-run. Although not generally specific to home loan protection, critical illness and income protection policies can be used for long-term illness and injury cover for mortgages. The specifics of each policy are outlined below.

Critical Illness Cover

Critical illness cover can easily be added to mortgage life insurance policies. Like life insurance, critical illness policies will payout a (typically) tax-free lump sum. For the policy to payout the policyholder will have suffered a critical illness specified in their policy wording document. Illnesses covered include heart attack, stroke and cancer (leading policies will include about 35 critical illnesses). This means that if a mortgage holder suffers serious illness or injury they can claim on their critical illness policy and then pay off the entirety of their home loan (provided they set the sum insured equal to the loan amount). Much like life insurance the policy term can be set decades into the future but for mortgage protection it makes sense to set this term equal to the loan term.Income

Protection Insurance

Much like mortgage payment insurance, income protection cover pays out a monthly benefit due to sickness or injury. The big difference is that income protection policies insure earnings and not loan repayments, and can last all the way up until retirement. This means that the policyholder can insure not only their home loan payments but also their living expenses also. If a claim needed to be made the policy would pay a monthly benefit until either the policyholder returned to work or the policy term ended. It is common for policies to last until 65 years of age but for mortgage protection cover purposes it makes sense to set the policy end date equal to the loan end date. It should be noted that unlike mortgage payment protection, income protection does not cover redundancy at all.