Alternatives to Payment Protection Insurance

If you are going to become the proud holder of a legally funded mortgage, you will probably be confronted with the difficulty of choosing the right type of insurance cover that would protect your financial commitment. Since Payment Protection Insurance, the biggest general insurance on the UK market, has got a lot of ill fame associated with overpricing and mis-selling, it would be more reasonable to consider other alternatives available.

You might consider taking out Life insurance cover alongside a mortgage. If you arrange this cover on a single basis, it would pay out on the death of the life assured. If you set up this cover on the basis of a joint life policy, it would pay out on a first death basis. It could be either a lump sum or as regular monthly payments.

One more cover worth mentioning is Critical illness insurance, which can be taken out either as a standalone policy, or as a part of a combined policy including life assurance. This cover pays out in the event of the policyholder getting one of a number of grave illnesses included in the list of the policy conditions. You could be given a lump sum or regular monthly income, just like in the case of Life insurance cover. A single or joint life basis can be chosen.

Permanent health insurance (PHI) can provide tax-free regular monthly repayments up to 50 per cent of the policyholders' gross income when the owner of an insurance contract  can’t work because of accident or illness. Unlike PPI, the benefits payable in the case of PHI are based not on the loan repayments, but on the policyholder's level of income. What is more, these benefits would be paid until the policyholder returns to work or reaches the age of retirement, whereas in the case of PPI the benefits are payable for twelve months only.

Mortgage Protection Insurance is designed to protect your regular mortgage payments or the rent in the event of accident, illness or unemployment. In some cases, if you need to protect not only your mortgage, but also other financial commitments (taxes, utility bills, personal loans, etc.), you can be offered the appropriate cover. You have the right to change your monthly benefit if your mortgage amount changes. Most MPI policies are payable only for a specified period of time, generally not longer than twelve months. You have enough flexibility in varying the type of MPI cover. For instance, you have a right to acquire just accident and sickness, or just unemployment cover. It should be noted, however, that MPI cannot be characterized by simplicity as they usually include a multitude of terms, conditions and exclusions.

Those looking for insurance designed to cover all kinds of major regular financial obligations should consider taking out Income Protection Insurance. Its main advantage is no need for separate covers since it would protect your monthly payments, including mortgage, council tax, rent, gas, etc. Most IPI covers do not explicitly state the actual amount the benefit should cover and is similar to income replacement, repaying the amount of salary lost because of the inability to work. As a rule, IPI policies are a bit more costly than mortgage protection.

 


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