Many individuals wonder how they would keep making their mortgage payments and keep up with their credit card and loan payments if they ever lose their income.
While this is a scary thought for many, there are insurance policies that could potentially help someone who find themselves in this position.
Even though this may seem like a great idea, it is important to consider these policies carefully – even though they can help through difficult times, they could also be a waste of valuable money.
Available Insurance Policies
When it comes to financial support after losing a job, there are three types of insurance products available:
Payment Protection Insurance (PPI): Payment Protection Insurance, also called Accident, Sickness, and Unemployment (ASU) cover can help cover the payments for credit cards and personal loans after the loss of income. Payouts for this type of policy will usually last a set amount of time, generally between 12 and 24 months, and will usually start three months after income stops.
Mortgage Repayment Protection Insurance (MPPI): This type of insurance policy is usually taken out alongside a mortgage. Benefits for this type of insurance will pay mortgage payments for a period of up to 12 months and payments will generally begin three months after income stops.
Short-Term Income Protection Insurance (STIP): Short-Term Income Protection Insurance will help replace a portion of income for a set amount of time, which is usually between 12 and 24 months. This type of policy should not be confused with other similar policies that will not pay out if the individual loses their job.
Consumers should be careful before considering purchasing any of the above policies – in some cases, this type of cover may already be included in an existing policy. Some mortgage companies will provide Mortgage Repayment Protection Insurance for their clients already, making purchasing another policy a waste of money.
Coverage Included in these Insurance Policies
All of the above listed insurance policies will only provide coverage in certain situations, which include:
- PPI and MPPI will generally only cover loan and/or mortgage payments and not the loss of income. Some MPPI policies, however, may include an extra sum of money to help cover other bill and financial responsibilities.
- Even though the policyholder will be paying premiums for many years, they will only receive payout benefits for a set period of time, which is generally around one year.
- STIP policies will generally pay out between 50 and 60 percent of the person’s income instead of being tied to any debt repayments.
- Many of the policies outlined above will not pay out benefits immediately. There is usually always a gap in time between when the loss of income and when the benefits begin. This period is generally three months, so it is important to file as soon as possible.
Reasons Why You Shouldn’t Purchase Income Protection Insurance
Before making an income protection insurance policy purchase, it is important to do some research in order to avoid wasting money. First, if redundancies at the employer have been announced or if there are whispers of potential job losses, it is wasteful to take out a policy the ability to make claim is removed.
Additionally, if someone decides to take voluntary redundancy, they will not receive any benefits. Always check the terms and conditions of any policy carefully in order to ensure benefits will be provided by the insurance company.
Reasons Why You Should Purchase Income Protection Insurance
Even though there are reasons to not purchase Income Protection Insurance, there are also reasons why it should be purchased:
- If the likelihood of redundancy at your place of employment is a medium to high risk within the next three to six months.
- If the person does not believe he or she will find another job within a period of three months after the redundancy
- Confidence 12 to 24 months of financial support will be enough
- Understand all of the exclusions for the policy
- Researching the best deal
For those interested in possibly purchasing this kind of policy, it is important to look around at different providers to find a policy and price that fits both lifestyle and budget – it is generally not recommended to purchase these products through a loan or mortgage provider without doing the proper research.