To avoid the risk of defaulting on your mortgage, you can take out a variety of insurance schemes to offer protection in case of an unexpected difficulty in earning money.
Payment Protection Insurance PPI
This insurance is specifically linked to a personal loan or credit card. For a monthly premium your repayments can be covered in the case of illness which prevents work. However, in recent weeks there have been concerns raised over PPI; it is argued that they are very expensive for the protection they offer. Furthermore borrowers may not be covered in all circumstances.
Mortgage Payment Protection Insurance MPPI
This will pay your mortgage for upto 2 years, if you become too ill to work. Only about 20% of mortgages are currently covered by this type of insurance. They usually cost about £5 a month for every £100 of cover. They are seen as quite an expensive way to insure your mortgage although buying independently maybe cheaper than with your existing mortgage lender.
Short Term Income Protection
This insurance is tied to your income directly. If you are ill, the payments will be sent to you rather than to your mortgage dealer. It means it can be used to pay other bills as well. However, the incoming income may affect your entitlement to benefits. Cover can vary between 35% and 60% of your income. The greater the % the more expensive the monthly payments will be.
This is insurance just for the eventuality of becoming unemployed. It might be appropriate if your employer offers good insurance for sickness. However, they are often not much cheaper than full income protection.