Take cover before the blitz

Who will pay your mortgage if you can't?

It never happens to you. Others may lose their jobs, have accidents or be forced out of work through illness, but not you. Until it happens, of course.

When it does, you begin to wonder how you will be able to maintain your mortgage payments, pay other household bills and keep a roof over your head.

Despite this week's 68,000 fall in the number of those out of work, hundreds of thousands of people still join the dole queue each year, even if for a short while.

Andrew Walbank, an architect, is one of them. Unlike many, however, after losing his job recently he is waiting to hear from Skipton Building Society whether mortgage payments of pounds 200 a month for his home in Ilkley, North Yorkshire, will be met by a special insurance policy he has.

If the payments are met, it will be the second time in just over two years that Mr Walbank has used of his policy. In 1995, he was also made redundant. Then, the Skipton policy paid his home loan for 12 months.

Mr Walbank, who has experience in many areas of architecture, says: "I decided when I bought this place in 1990 that I wanted some protection. This relieves you of the pressure and responsibility of worrying about what happens when you are out of work.

Despite the jobless total reaching record levels earlier this decade, accident, sickness and unemployment insurance, so-called ASU cover, was until recently taken out by barely 25 per cent of mortgage borrowers.

A large part of the reason was that up to two years ago, borrowers knew that mortgage interest benefits from the state would be paid if their lost their jobs. In fact, all it took was a two-month wait plus four more when half the interest was paid.

Another reason was the high cost. For people to be covered cost about pounds 7 per pounds 100 of monthly mortgage payments. Cover for a typical pounds 50,000 loan might cost pounds 25 a month.

But since October 1995, new borrowers must wait nine months before income support will meet their mortgage payments.

Today, a Halifax spokeswoman says: "We have seen an increase in the number of people taking out the cover, up to one third of new borrowers since the rules were changed.

"We don't want to force-feed people. All we can do is point out that it is there and that it can be useful. But there is a fine line involved."

One major factor in making such policies more popular has been the reduction in the cost of cover. Halifax's cover now costs pounds 4.98 per pounds 100 of monthly mortgage payments.

As with many policies, cover kicks in after a person has been out of work for 30 days although 180 days must elapse from the time the policies first started before a person is eligible for benefits. However, sickness or accidents ensure immediate payment, which last for up to 12 months.

Skipton Building Society believes in the product so much that it offers free unemployment cover to all its new borrowers and charges about pounds 4 per pounds 100 to extend the policy.

Gerry Dupree, an independent financial adviser in Gloucester whose company, Gerry Dupree & Co, specialises in mortgage advice, says he makes a point of recommending the cover to all his clients.

"The way we work is that we do not sell the same policy to all our clients," Mr Dupree says. "They all have different needs and requirements. Some will just need redundancy cover, because they have adequate sickness provision in their contracts. By making it cheaper, we make it more attractive." His company belongs to Mortgage Intelligence, a network of 400 home loans specialists, who can negotiate special deals on their clients' behalf.

Philip Watson, a director at John Charcol, the UK's largest mortgage broker, also believes strongly in the product: "There is a tendency to assume that if you lose your job the state will step in. In fact, 80 per cent of people do not qualify for benefits.

Also, people forget that this kind of cover is not just about unemployment. About 60 per cent of our claims are for accidents and sickness."

John Charcol too uses a number of different insurance companies to meet its clients' needs: "We need to be able to ensure that you get what's right, whether a person is a steeplejack or an office worker."

Mr Walbank isn't either of those. But he says: "I cannot speak too highly of this insurance. Even when I find work again, I shall still continue my payments towards it."

John Charcol: 0800 939393 Mortgage Intelligence: 0800 246000