1. WHAT IS MORTGAGE PROTECTION INSURANCE?
Mortgage Protection Insurance is a package of the normal range of insurance benefits which are put together specifically to protect a mortgage. Because the insurance is specifically intended to protect the mortgage there are some special features included.
( * refer to relevant web page for a description of these benefits )
MONTHLY MORTGAGE REPAYMENT BENEFIT – OFFSETS
When ‘Monthly Mortgage Repayment’ benefits are included in a Mortgage Protection Insurance package, then unlike normal Income Protection, there will be NO income offsets on the mortgage repayment amount insured. This means you could receive both ACC and your mortgage repayments while you are off work – potentially seeing you receive more money whilst off work than when you were at work!
However, if your Mortgage is repaid then normal Income Protection offsets will apply
Also, if you are insuring the mortgage repayments on an investment property the rent will be offset.
‘TOP-UP’ INCOME PROTECTION
Because ‘Monthly Mortgage Repayment’ benefits can only be for up to 110% of your mortgage repayments, you can add a ‘Top-Up’ Income Protection benefit to ensure your full income is insured. This ‘Top-Up’ can be either an ‘Agreed or ‘Indemnity’ value benefit.
TIP: You could choose to have the Monthly Mortgage Repayment benefit start after a 4 or 8 week waiting period and the Top-Up Income Protection could start after a 13-week waiting period – significantly reducing the premium!
WAITING PERIODS – for Monthly Mortgage Repayment
The Waiting Periods offered for a Monthly Mortgage Repayment benefit are;
4 weeks,8 weeks and 13 weeks.
AGREED VALUE vs INDEMNITY VALUE
Monthly Mortgage Repayment benefits are always offered as an ‘Agreed Value’ benefit meaning the premium is not tax deductible and the benefit is not taxable.
2. OPTIONAL BENEFIT – REDUNDANCY
Most Mortgage Protection Insurance Policies offer an option to insure yourself against redundancy if you have chosen to have Income Protection benefits.
The standard benefits are paid after a 4-week waiting period and only for up to 6 months.
This option is only available to salary and wage earners.
3. HOW MUCH MORTGAGE PROTECTION INSURANCE DO I NEED?
If you are the sole income earner in the family, you should insure the full amount of your mortgage for Death and Monthly Mortgage Repayment benefits, at least.
If you are the major income earner in the family, you should also insure the full amount of your mortgage for Death and Monthly Mortgage Repayment benefits at least.
If you are a joint equal income earner you could get away with only insuring half the amount of your mortgage for Death and Monthly Mortgage Repayment benefits.
TIP: Another solution to control insurance costs is to just insure the percentage of the mortgage that your income represents e.g. if your income is $50,000 and your partners income is $25,000, then total income = $75,000. You could insure 66% of the mortgage amount for you and 33% of the mortgage amount for your partner.
Once again, this is not a satisfactory solution but some cover is better than no cover !!
Remember the more you insure, the more it costs.
4. HOW MUCH DOES MORTGAGE PROTECTION INSURANCE COST?
(This is a guide only; they are the approx prices for a person in good health)
Assuming a $200,000 mortgage & repayments of $1,450 pm
Mortgage Protection Insurance Package: $200,000 Life Cover, $1,450pm Mortgage Repayment cover with an 8 week waiting period, payable to age 65 + Waiver of Premium:
30 yr old male, non smoker, desk work = $35pm (female = $40pm)
30 yr old male, non smoker, tradesman = $44pm
40 yr old male, non smoker, desk work = $58pm (female = $74pm)
40 yr old male, non smoker, tradesman = $75pm
50 yr old male, non smoker, desk work = $117pm (female=$138pm)
50 yr old male, non smoker, tradesman = $150pm
NB: These prices are indicative only. Even if you are a 40 year old male tradesman, the price can vary greatly between companies; and remember the “Acorn” guarantee to get you the best price possible and beat any written quote you already have !!
DISCLAIMER; These explanations and comments are general in nature only. You must refer to the appropriate policy document wordings for full and complete understanding.
“Mike was the first Insurance Adviser to take the time to explain the insurance options in a way that I could easily understand. So I bought some insurance from him and he saved me heaps on my premium.”
– Dan Sutherland, Christchurch