What is mortgage protection insurance?
Mortgage protection insurance is a simplified form of personal insurance available to mortgage holders. It is designed to protect the borrower in case of loan default, and also cover the cost of regular monthly mortgage repayments if you die, become seriously ill with a medical condition or lose your job.
Mortgage protection insurance should not be confused with lender’s mortgage insurance (LMI), which is a form of insurance that the lender takes out if it thinks the borrower is high risk. With LMI, the premiums for the policy get added to the borrower’s loan amount. Whereas, in the case of mortgage protection insurance, the borrower owns the policy and pays the premiums for it directly.
Key features of mortgage protection insurance
As an example, here are the mortgage protection insurance key features on offer by one provider – note this is a broad overview and conditions apply.
You could potentially receive payments of:
- Up to $1,000,000 to pay off your home loan if you die, and if there’s any left over, it will be paid to your family to use however they like.
- Up to $7,500/month to cover your monthly repayments if you’re unable to work due to serious illness or injury, for up to 30 months.
- Up to $7,500/month to cover your monthly repayments if you become involuntarily unemployed, for up to 90 days.
In the instance of this particular insurer, if you receive a medical consultation for any illness or injury in the 12 months before you purchase the policy, and that illness or injury leads to a claim after the policy commences, you will not be covered. The illness or injury will be excluded as a pre-existing condition.
What happens to my home loan if I lose my job?
Does mortgage insurance cover job loss? That depends on two things:
- Whether you are employed full-time (covered) or are part-time/casual/contract/temporary/self-employed (not covered)
- Whether you were fired (involuntary unemployment – covered) or you quit (voluntary termination – not covered)
As for what happens to your home loan if you lose your job, as we’ve discussed above, different providers will cover you for up to a certain amount and for a set timeframe (benefit period). This means the insurer will cover your monthly repayments up to that amount each month (e.g. $7,500/month), for up to a certain amount of time (e.g. 90 days or 3 months’ worth of repayments).
How much does mortgage protection insurance cost?
The exact cost of your mortgage protection insurance will depend on a number of the following factors:
- Joint policy or single policy owners. Whether the policy is taken out as single or joint cover.
- Cover type. The policy chosen and the features that the applicant has included on the policy.
- Loan amount. The size of the loan will be used to calculate the life benefit premium.
- Premium is calculated by taking into consideration the age of the policyholder at the date of starting the policy.
- Repayment size. Your premium for disability type benefits is dependent on the size of your monthly repayments.
Compare home loans with Canstar
Whether you’re thinking about taking out a home loan, or you’re halfway through paying off your mortgage, mortgage protection insurance is something to consider. As with making any purchase decision, ensure you read the product disclosure statement (PDS) and the terms and conditions before signing your name.
Whether you have mortgage protection insurance or not, make your home loan easier to pay off with a low interest rate and features to suit your finances.