Paul Sanchez
Mortgage protection insurance is a type of insurance that covers your home loan repayments if you lose your source of income. It is not compulsory in Australia, but it is often recommended by brokers and lenders as a means to protect borrowers' ability to repay their mortgage in the event of sudden sickness or inability to work. This insurance is different from lenders mortgage insurance, which protects the lender if the borrower defaults on their repayments. The cost of mortgage protection insurance varies depending on personal circumstances, and it may be worth considering other types of insurance, such as income protection or life insurance, which can also help cover mortgage repayments in the event of income loss.
| Characteristics | Values |
|---|---|
| Compulsory | No |
| Purpose | Protect homeowners from falling behind on their repayments in difficult circumstances |
| Coverage | Covers home loan costs, including regular monthly mortgage repayments |
| Cost | Around 0.5% to 1% of the loan amount annually; cost varies depending on the policyholder's personal circumstances |
| Payout | May be a lump sum or ongoing payment; may be capped and may not cover the entire home loan amount |
| Exclusions | Pre-existing medical conditions, self-employment or part-time employment |
| Alternatives | Income protection insurance, life insurance, trauma insurance, total and permanent disability insurance |
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What You'll Learn
Mortgage protection insurance is not compulsory
Mortgage protection insurance is a type of life insurance that covers the amount of your home loan. It generally covers a portion of your income (approximately 70%) and covers you for your loan repayment for a period of up to 12 months if you are unable to repay your home loan due to sickness or injury. The cost of mortgage protection insurance is dependent on the amount you wish to insure.
Mortgage protection insurance policies often place limits or restrictions on when and how much a customer can claim. For instance, the benefits a policyholder or their family can receive may be capped, meaning the money they get may not cover the entire home loan amount, or the payments may stop after a set number of days or months. It is common for certain claims or policyholders to be excluded. For example, a policyholder may be ineligible to make a claim if they were self-employed or working part-time before losing their job, or if they had a pre-existing medical condition.
Mortgage protection insurance has become less common in recent years, and major lenders such as the Commonwealth Bank and NAB have stopped selling it to new customers. A 2019 Australian Securities and Investments Commission (ASIC) investigation found that many MPI products were overpriced or unfairly sold, or that issuers incorrectly denied claims. The investigation also found that policyholders only received about 19 cents back for every $1 paid in premiums.
When considering mortgage protection insurance, it is important to read the contract terms carefully. Each insurer will offer different cover depending on your circumstances. It is also recommended to build up an emergency fund, even if you do take out a policy.
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It covers your home loan repayments if you cannot work
Mortgage protection insurance (MPI) is not compulsory in Australia, but it can be a valuable safety net if you're unable to work and are concerned about making your home loan repayments. MPI is designed to cover your mortgage repayments if you lose your job, become seriously ill, or suffer an injury that affects your income. It provides peace of mind and helps protect your home, ensuring that your beneficiaries can retain it if something happens to you.
While MPI can be beneficial, it's important to carefully consider your options before purchasing it. Here are some key points to keep in mind:
Coverage and Exclusions
MPI will typically cover your mortgage repayments if you are unable to work due to redundancy, illness, or injury. However, it's important to note that most policies have restrictions and exclusions. For example, pre-existing medical conditions are usually excluded, and part-time or casual employees working less than 20 hours per week may not be eligible for cover. Additionally, MPI only covers your mortgage repayments and will not cover other living expenses or debts.
Cost and Value
The cost of MPI can vary depending on your personal circumstances, such as your income and job security. It is generally calculated as a percentage of your loan amount on an annual basis. While it can provide financial protection, MPI has been criticised for offering poor value to consumers. There have been instances where policyholders received significantly less than their premium payments, and the added cost of premiums can increase the overall cost of your loan.
Alternatives
Before deciding on MPI, it's worth considering alternative insurance options. Income protection insurance, for example, can provide monthly benefits to replace lost income due to sickness or injury and can help manage mortgage payments. Life insurance, also known as death cover, pays out a lump sum that can be used for mortgage repayments and other debts. Lenders mortgage insurance (LMI) is another option, but it's important to note that LMI protects the lender, not the borrower, in case of default on the loan.
In conclusion, while MPI is not compulsory in Australia, it can provide financial protection for your home loan repayments if you are unable to work. However, it is important to carefully consider the coverage, exclusions, cost, and alternative options before purchasing MPI to ensure it aligns with your personal circumstances and provides the level of protection you require.
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$15.89
It can be purchased from regular insurance providers
Mortgage protection insurance (MPI) is not compulsory in Australia. However, it is available for purchase from regular insurance providers.
When considering MPI, it is important to carefully read the contract terms. Each insurer will offer different cover depending on your circumstances. Some common exclusions to be aware of include any serious illness that is a pre-existing medical condition or caused by a pre-existing condition, such as cancer or a knee injury. You can find details of the specific exclusions for each insurance policy in the Product Disclosure Statement (PDS), which is one of the key disclosure documents you receive when purchasing a product.
The cost of MPI can vary depending on a policyholder's personal circumstances, such as their income, the amount they wish to insure, and the insurer and policy they choose. Typically, MPI policies cost around 0.5% to 1% of the loan amount annually, but it is recommended to get a range of quotes to ensure you get the best deal.
It is worth noting that MPI has attracted criticism in recent years for offering poor value to consumers. A 2019 Australian Securities and Investments Commission (ASIC) review found that policyholders only received about 19 cents back for every $1 paid in premiums, and many products were overpriced or unfairly sold. Therefore, it is essential to carefully consider your options and compare different policies before purchasing MPI.
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It may be worth having as a fallback for your family
Mortgage protection insurance is not compulsory in Australia. However, it may be worth considering as a safety net for your family if they are suddenly left without your income. This type of insurance can provide either ongoing payments or a lump sum to help your family keep up with mortgage repayments if you are unable to work due to sickness, injury, or other circumstances covered by the policy. It can also pay off the remainder of your mortgage upon your death, so your loved ones do not have to bear the burden of the loan.
There are some important considerations to keep in mind. Mortgage protection insurance has received criticism in recent years for offering poor value to consumers. Policies often have limits or restrictions on when and how much a customer can claim, and the money received may not cover the entire home loan amount. Additionally, certain claims or policyholders may be excluded, and there may be waiting periods before a claim can be made. It is also important to note that mortgage protection insurance only covers home loan costs and will not provide financial support for other living expenses.
Despite these limitations, mortgage protection insurance can still be a valuable fallback option for your family. It can provide peace of mind and financial security during difficult times. When considering mortgage protection insurance, it is essential to carefully review the contract terms and exclusions as these can vary between insurers. Building an emergency fund and exploring other insurance options, such as income protection and life insurance, can also enhance your financial safety net.
The cost of mortgage protection insurance is typically calculated as a percentage of the loan amount, usually around 0.5% to 1% annually. The specific figure will depend on the amount you wish to insure and your personal circumstances. It is recommended to obtain quotes from multiple insurers and lenders to ensure you get the best deal. Additionally, consider how the insurance premiums will impact the total cost and repayment period of your mortgage to assess the value for money.
In conclusion, while mortgage protection insurance is not compulsory in Australia, it can be a valuable fallback option for your family. It provides financial protection against adverse events that may affect your ability to repay your mortgage. However, it is important to carefully review the policy details, consider the limitations, and explore alternative insurance options to make an informed decision that best suits your needs and provides adequate financial security for your loved ones.
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It is criticised for offering poor value to consumers
Mortgage protection insurance (MPI) in Australia is not compulsory. However, it has been criticised for offering poor value to consumers.
In 2015, the Consumer Action Law Centre warned that consumers could "expect to pay over $2,000" for consumer credit insurance (CCI), which includes mortgage protection insurance. A 2019 Australian Securities and Investments Commission (ASIC) review found that policyholders received only about 19 cents for every dollar paid in premiums. The review also found that mortgage protection insurance premiums are sometimes added to the balance of a customer's home loan, which significantly increases the cost of the product due to the extra interest charged on the loan.
Mortgage protection insurance policies often place limits or restrictions on when and how much a customer can claim. For example, the benefits a policyholder or their family can receive may be capped, meaning the money may not cover the entire home loan amount. Certain claims or policyholders may be excluded, such as those who were self-employed or working part-time before losing their job, or those with pre-existing medical conditions. There may also be waiting periods before a policyholder can make a claim or receive benefits.
The 2019 ASIC investigation also found that many MPI products were overpriced or unfairly sold, and that issuers incorrectly denied claims. Some consumers may find that they have paid expensive premiums and never needed MPI, essentially "losing" that money. Additionally, if a claim needs to be made, there may be a waiting period of 30 days or more for it to be processed, which could still leave the policyholder under mortgage stress.
Other insurance options, such as income protection, life insurance, and trauma insurance, may provide better value for consumers by covering mortgage repayments as well as other debts or expenses.
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Frequently asked questions
No, mortgage protection insurance is not compulsory in Australia. However, it is often recommended by brokers and lenders as a means to protect borrowers' ability to repay their mortgage in the event of sudden sickness or inability to work.
Mortgage protection insurance is a type of life insurance that covers the amount of your home loan. It generally covers a portion of your income (approximately 70%) and covers you for your loan repayment for up to 12 months if you cannot repay your home loan due to sickness or injury.
Mortgage protection insurance covers your home loan repayments if you are unable to work due to sickness, injury, or redundancy. It can also pay off the rest of your mortgage if you pass away, so your loved ones do not have to pay off the remainder of the loan.
The cost of mortgage protection insurance varies depending on personal circumstances and the amount of cover desired. Typically, policies cost around 0.5% to 1% of the loan amount annually.
Mortgage protection insurance can provide peace of mind and financial protection if you are unable to work or pass away. However, it has been criticised for offering poor value, with policyholders often receiving significantly less than they paid in premiums. It is important to carefully consider the terms and exclusions of any policy before purchasing.
