Mortgage insurance – why be vulnerable?

Burgesses Insurance News has published an interesting article today looking at the rationale behind the purchasing of insurance as a protection vehicle, and questions why the public are disinterested and can’t be bothered when it comes to purchasing Mortgage Protection for the largest investment of all – a house!………..

It it just that the public doesn’t appreciate the risks? Until it is too late….

Mortgage insurance – why be vulnerable?

First Published July 27th, 2009 in Mortgage Insurance |

Most people are thoroughly accustomed to one of the most basic principles of insurance – if something is valuable, it is probably worth insuring. Although the principle might be widely recognised in many other areas of domestic life, however, for some reason it does not seem to be so readily grasped when it comes to mortgage insurance.

Only an estimated 25% of the nation’s 11.7 million mortgage borrowers are believed to have arranged this potentially indispensable for of insurance. Given the sheer value of the mortgaged homes, not to mention the dire consequences of defaulting on the mortgage repayments, the statistic is surprising to say the least. Some three-quarters of borrowers seem to be leaving themselves vulnerable to the most common risks to their incomes – accidents, illnesses and unemployment – and with the loss of an income, the ability to continue their mortgage repayments.

The penalties for defaulting on the mortgage repayments, of course, can be serious indeed. In the worst cases, it can lead to repossession of the home itself by a mortgage lender determined to recover the outstanding debt. But even if some arrangement can be reached with the lender, the homeowner is still vulnerable. If mortgage repayments cannot be made, the home might have to be sold – even though the current state of the housing market might mean that such a sale realises less than the outstanding mortgage debt. At the very least, the late or non-payment of the mortgage installments as they fall due will attract adverse credit reports on the borrower’s file. This will make borrowing – or any other form of credit – more expensive to arrange in the future, if the facility is extended to the individual at all.

This is a vulnerability that the homeowner can easily avoid with mortgage insurance. The insurance can offer complete protection for the mortgage repayments in the event that the policy holder meets with an accident or suffers an illness that prevents normal earnings from work. The same protection is also extended if the policy holder loses his or her job through compulsory redundancy. In any of these events, such a policy will pay out an insured benefit from which the mortgage repayments can continue to be paid – in many instances, directly to the mortgage lender concerned, if needs be.

Once in payment, the mortgage insurance monthly benefit payments ensure that the mortgage is repaid every month that the policy holder remains incapacitated for work, involuntarily unemployed, or for up to a typical maximum period of 12 months, whichever is the shorter time. Taking up the option offered by some policies, payouts can be made over an even longer period and extended for up to a maximum of 24 months, if an additional premium is paid.

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