Should I take out Insurance on my mortgage? Cases in which different types of insurance are necessary, mandatory or not necessary

A mortgage can have different types of insurance attached to it. In the following we will see what are the advantages each type of insurance that you can have attached to your mortgage.

Building and Contents Insurance

This type of insurance is obligatory for all mortgages. It insures your home from damage of any sort and also insures the contents of your home. It is useful to you because it compensates loss as a result of unforeseen events and damage to the contents of your home and it is required by your lender so he is confident that in case he has to reposes your home there will be something left to reposes.

We recommend that you do a little research on the offers available on the market and we do not recommend taking the bundle offer that your lender will likely offer before you have something to compare it with.

Mortgage Payment Protection Insurance

This type of insurance is particularly useful for the borrower because what this policy does is pay out should you become incapable of paying your mortgage.

The costs of such a mortgage are of around 4 to 8 £ per month for each £ 100 of the monthly installment that it would have to cover. Be careful as these insurance policies will only cover your repayments for 12 to 24 months, depending on the cost of the policy and they only kick in after 30 days of claiming.

One other important aspect is that having and being wiling to pay for this type of insurance will make you more attractive to a lender, which, in turn could enable you to borrow more or have a lower interest rate.

Also, state help for mortgage payment defaults is very limited nowadays. If your mortgage is bellow £ 100 000 you will get limited help from the state and only for the repayment of interest. If the mortgage is larger than £ 100 000 not help is available.

On the other hand, if you are confident enough, which you rarely should be, you can avoid paying for insurance.

Mortgage Indemnity Insurance

This type of insurance, even if you pay for it, will only protect the lender. This insurance policy will cover the difference between the sale price of your home and the amount of outstanding debt. In other words, your lender will recuperate his money in any eventuality, but you may still be held accountable years later and may have to repay the amount to the insurer.

This type of insurance may be required by the lender for LTV's of more than 80% or may not be required at all. Try avoiding lenders that require it. It may cost you £ 1000 or more.

Mortgage Protection Decreasing Term Insurance

This is a type of insurance who's premiums and payout decrease as the outstanding capital amount of your mortgage decreases. It is a cheaper option to regular life insurance but will only cover the remaining payments on your mortgage and is only advisable if the only purpose for having insurance is the ability to pay your mortgage.

Permanent Health Insurance

One of the most common reasons for payment inability is illness. Although employers do provide such coverage for a number of months, in most cases it is insufficient as is state help. State help will only amount to around £ 200 per month.

Typically, this type of insurance policy will pay out half your usual income sometimes until retirement. If you wish to opt for this type of insurance, be careful to check what exactly is considered a disability and if the inability to work refers to any job or your present job.

Your medical condition, according to the policy terms, may not be considered a inability and "a job" can mean anything as opposed to "your job" which would refer to a inability to perform you present profession.

Final Word

Usually any type of insurance would increases your financial stability and security. Insurance will also increase your credibility and in turn allow you access to better mortgage deals. However, as you have seen above, there are exceptions and not every type of insurance is necessary.

When wanting to take out an insurance policy you would be well advised to shop around for a while. Differences in cost, for the same product, are common and over 25 years of mortgage term, they can amount to several thousands of pounds.