How safe is your income?
Permanent health insurance and mortgage protection, if you don’t know the difference you may be paying for a policy that you don’t need.
The insurance industry can often confuse people with the names it gives to different policies and what they cover. Although policies may have different titles, they can sometimes overlap one another. It’s a good idea to learn more about what each entails to ensure you are not paying for pointless insurance as well as ensuring you have adequate cover for your needs.
Two policies that are often confused are Permanent Health Insurance (PHI) and Mortgage Payment Protection Insurance (MPPI). Because the nature of the coverage is similar it sometimes makes it difficult to differentiate between the two.
Payment protection policies are often sold as part of the deal when customers take out a loan, mortgage or credit card.
Permanent Health Insurance
PHI is a policy that financially protects you in case you are injured or fall ill and are unable to work by paying you a tax-free income.
The maximum amount of money you can receive is the after-tax earnings you have lost minus the amount of state benefits you can claim. This means that you can’t claim on your net income – so if you are taking home £2,000 per month after tax, that is the maximum amount of money that you can get although most policies will give you about 65 per cent of your net income
The policy pays out after deductions have been made from benefits you are receiving such as payments from your employer, pension payments, insurance payments from other policies and dividends from shares.
The cost of the policy depends on a number of factors, including how much replacement income you want to receive, the length of time before payment begins, the duration of the policy and any other options you wish to purchase.
There are personal factors taken into account that can raise your premiums such as your age, gender, the type of work you do, your medical history, whether you smoke and what age you plan to retire.
What your policy may not cover
-healthy pregnancies
-self-inflicted injuries
-criminal acts
-excessive use of alcohol and drugs
-failure to follow medical advice
-any medical conditions you knew about at the start of the policy
Mortgage Payment Protection Insurance
MPPI is a type of protection that helps pay down your mortgage if you were to fall ill, get into an accident or become unemployed. This, as with many types of insurance, becomes more expensive with the more circumstances you want to cover.
If you are in the position where you may have stretched yourself too thin with your mortgage payments and sudden unemployment would cause you financial difficulty, it is important to consider MPPI.
The price you pay for a MPPI is determined by the size of your mortgage payments, with the premium per £100 of cover multiplied according to the size of the mortgage.
In order to cover a mortgage payment of £800 per month you can secure a cheap policy which should cost you around £8 per month.
Iprotect Insurance for example, will offer you a rate of £8.71 per month for your £800 mortgage but this particular policy only provides sickness and accident cover lasting 12 months.
Alternatively, Helpucover will secure your £800 mortgage for £6.64 per month covering you for illness and accidents for a period of 16 months. The only concern with cheaper policies is that they often take 180 days for the pay-out to begin, and may only cover you for a couple of circumstances - which could leave you in a difficult situation.
More expensive policies are available and will begin to compensate you within a couple of weeks.
Many policies limit monthly payments to £1,500 - £2,000 so those of you who have large mortgages may have some difficulty.
The length of MPPI policies are usually 12-24 months, basically providing you with enough time to find work. Longer periods are available but this varies on your circumstances and provider.
If circumstances were to arise that would hinder you from working again you may be forced to sell your house.
What your policy may not cover
-end of contract
-temporary work
-choosing to leave the position
-misconduct
-early retirement
These are not simple policies so it’s important to learn more about your options and speak to a financial adviser before purchasing cover.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
Mortgages - YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE. FAILING TO ADHERE TO REPAYMENT TERMS MAY RESULT IN PENALTY CHARGES AND AFFECT YOUR CREDIT HISTORY. Rates may depend on your individual circumstances
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