Homeowners take cover as the clouds turn dark

With fears mounting over job security and house prices, Laura Howard looks at the rising sales of policies that protect your income and mortgage payments

The mood has changed in the property market. The optimism of spring and summer has given way to a winter of unease over the direction of house prices and the wider UK economy. As a result, it seems, an increasing number of homeowners are looking to insure themselves against nasty "what ifs" like redundancy and ill health. With the property market recording its third successive monthly price fall, according to the Halifax, the option of selling up if things go wrong may no longer be there.

The Association of British Insurers reports that sales of income protection (IP) policies that pay out if you become too sick to work have increased by 26 per cent over the past year. Figures show that 43,000 plans were bought in the third quarter of this year, up from 34,000 for the same quarter in 2006.

Lifesearch, an independent financial adviser, has also reported surging interest in policies specifically designed to keep up payments on a mortgage debt. Matt Morris at Lifesearch says: "There is a downturn in confidence sweeping the housing market and a general realisation that the 'cushion' offered by rising house prices and low interest rates is no longer available. As a result, we are taking significantly more phone calls from people wanting cover for their mortgage repayments. Our team of advisers are currently reporting up to 2,000 enquiries a week."

But Mr Morris says homeowners are at risk of getting their insurance priorities wrong. The entry point for mortgage-related protection enquiries is usually life cover, as people become concerned about how their family would cope with no income, according to Mr Morris. But he points out that death is the event that is least likely to occur in terms of someone being unable to work. "It's more likely to be an illness, which is why income protection should be the first policy people consider. It can also work out cheaper."

IP, otherwise known as income replacement or permanent health insurance, pays around two-thirds of salary if you can't work because of ill health or injury, until such time as you can resume your original job.

Basic IP insurance does not cover unemployment but Mr Morris says that many policyholders have been calling to add "bolt-on" redundancy cover at an average cost of around 25 a month. A standard IP policy for a 40-year-old office male office manager, without redundancy cover, costs some 30 a month, according to Lifesearch.

Mortgage payment protection insurance (MPPI), sold by mortgage lenders, promises to meet the repayments on a home loan if the borrower can't work. This seems straightforward enough but MPPI has had a bad press. For a start, it is only designed to cover your home loan, whereas by compensating you for most of your salary, IP will usually provide more funds. And, also unlike IP, MPPI is an "any occupation" policy: as long as you're fit to do some work, not just your own job, you won't be paid.

MPPI also typically excludes pre-existing conditions as well as new health problems if they are stress- or back-related. Consumer groups say fewer than one in five claims made on these policies end in payment.

What's more, MPPI only pays out for a maximum of one year and the terms and conditions an change even once an agreement has been signed. "We only sell a handful of these policies; nine times out of 10, they are not the most suitable or cost-effective option," says Mr Morris, who usually points clients towards income protection.

The new interest in protection products should not be overstated. Although, some mortgage holders have read the economic runes and are diving for insurance, many more are either oblivious or can't afford the extra expense.

"Part of the problem is that interest rates are 1 per cent higher than they were in August 2006," says Melanie Bien, director at broker Savills Private Finance. "As a result, the cost of the mortgage itself is much more. So many borrowers feel they can't afford the cost of cover on top. Yet it is important to take a longer-term view and consider whether you and your family are protected if you are no longer able to bring in an income."

Rob Clifford, managing director of broker Mortgageforce, which also sells IP and life insurance, says that the general attitude towards this type of protection is "surprisingly lax", despite the recent increase in sales. "We all insure our televisions and holidays but when it comes to the family home, it gets overlooked.

"Of course any rise in protection sales is a good thing, but ultimately mortgage-related insurance is still a product that is sold and not bought."

For those homeowners still uninsured, some relief came last Thursday when the Bank of England's Monetary Policy Committee cut rates by 0.25 per cent to 5.5 per cent.

This will cut repayments on a 100,000 mortgage by around 15 a month. But even so, says Mr Morris, borrowers should be aware that any number of interest rate falls will not protect them against illness.

Six to view in the Cotswolds

247,500

Chipping Norton, Oxfordshire

Two-bed cottage believed to date from mid-17th century; original features

395,000

Stourton, Warwickshire

Three-bed detached house; rear garden, garage, located on edge of stunning village

400,000

Broadway, Worcestershire

Two-bed cottage; both beds en suite; sitting and dining rooms; courtyard garden

425,000

Bourton-on-the-Water, Cheltenham

Four-bed detached bungalow; dining and sitting room; rear garden; garage

495,000

Stow-on-the-Wold, Gloucestershire

Four-bed stone cottage; large dining and sitting rooms;enclosed garden and garage

665,000

Cirencester, Gloucestershire

Six-bed detached house, currently a B&B; spacious reception rooms and kitchen area

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones