Mortgages, True Costs Revealed - Insurance

When buying a home there are a number of types of insurance you may have to take out.

Mortgage Payment Protection Insurance (MPPI) is one of them. Its purpose is to ensure that mortgage repayments will be met in the events of unemployment, sickness or accidents.

Although this may afford the buyer peace of mind, whether to take out this type of insurance is a personal decision.

For example, if you have good accident or sickness protection through your employer, or if the company you work for has a good redundancy policy, MPPI may not be necessary.

If you have access to savings, for example up to three times your monthly salary, you can use those instead until you find another job.

Another type of insurance lenders often recommended is life cover, which pays off the mortgage in the event of a borrower’s death. Until recently, most lenders made life insurance obligatory. Nowadays, many don’t.

But for most families, especially with young children, it still makes sense to consider this type of cover, as it means the loan will be paid off if one of the main breadwinners dies.

One type of cover that lenders will insist on is buildings insurance, in case of disasters such as fire, floods and so on.

From the insurer’s point of view, this is essentially to protect their investment, as until the loan is fully paid off the home is still technically theirs.

But it also ensures that if anything happens to your home, it can be repaired or rebuilt and you can continue to live in it.

Either way, the number one rule with regards to mortgages is to not automatically take out lenders’ own insurance cover.

‘Tied in’ insurance – whether MPPI, household or even life cover – is often more expensive when taken out through a lender and can generally be found more cheaply from an independent supplier.