Mortgage protection insurance
1. Background.
2. Types of credit/loans.
3. Premium calculation and payment.
4. Main areas of sale.
Background
Mortgage payment protection insurance and loan repayment protection insurance are designed to assist customers keep up their mortgage and loan repayments during times when they are unable to work through illness, accident or unemployment. In some cases life cover is included so that in the event of death the loan/mortgage is paid off or part paid off depending on the sum insured.
Mortgage payment protection insurance has been around since the 1960’s and was started in the USA by some of the major lending banks. In the original stages unemployment was not included in the cover. The original objectives were,
• To help customers through hard times due to accident and sickness.
• To reduce the Bank’s bad debt risk that might arise from such a situation.
• Selling the insurance created income for the bank and provided another service for their customers.
In the 1970’s Mortgage payment protection insurance started to be introduced into the UK, although at that time it was generally limited to mortgages.
Later on it was appreciate that the same risk and hardships could exist through the need to maintain loan repayments and the cover was extended to loans.
More recently it has been appreciated that loss of income will effect households when it comes to paying regular out goings such as rent, gas, electric and other regular bills. To cover this eventuality the insurance has been called Financial Commitment Insurance.
A similar product, but not exactly the same, is income protection insurance, which is designed purely to protect a percentage of lost income through illness, accident or unemployment depending on the level of cover brought.
The Association of British Insurers has estimated that the UK mortgage insurance market was worth over £5 billion in 2003. This places it above the market value of household insurance in the UK. Datamore have predicted a steady growth in mortgage protection insurance.