Humans are optimists by nature and that makes us underestimate the chances of something going wrong. The way we get mortgages is an example that has an easy solution: take out payment protection insurance . Doesn't that seem simple? Because it is!
But do you know what this type of insurance consists of?
What is payment protection insurance?
As its name suggests, payment protection insurance is a policy whose objective is to guarantee the payment of mortgage installments during its validity period .
In other words, it is an insurance that allows you to pay the mortgage for a certain period of time if for any reason you are unable to do so.
For example, what would happen if you lost your job? Or if you suffered an accident or an illness that made you unable to work? And now with the coronavirus crisis, what if you were the victim of an ERTE. That's where payment protection insurance comes in? can be of great help.
What exactly does payment protection insurance cover and what does it not cover?
Payment protection insurance is used to cover situations of unemployment or temporary disability . Unless another condition is added to the policy, it will only cover these two cases.
The rest of the situations? They will be excluded from the insurance and the policy will not be activated, even if you need the money. This is something you should be very clear about.
Even in the case of unemployment and disability there may be exclusions . Exclusions are special situations or exceptions in which payment protection insurance will not be activated. An example of these exclusions would be if you resign and voluntarily leave your job and even suffer a dismissal. disciplinary.
Along with the exclusions, you should also check the waiting period , which is the time that passes from when you take out the insurance until you can use it. If, for example, you take out protection insurance, it is easy for it not to pay you the unemployment benefits. until a few months have passed to avoid the risk of fraud.
Until when and how much does the policy cover you?
Payment protection insurance also has other limits. You will not be paying the mortgage instalment forever. The most common payment period is between 6 and 12 months, either consecutive or alternating.
Something similar happens with the amount of the installments. Depending on the insurance you take out, it will allow you to pay the entire mortgage installment or just a percentage. Obviously, the price of the mortgage payment insurance will be higher if you cover the entire installment. .
How can you ensure that payment protection insurance or any other insurance will cover you when and until you need it? By hiring experts who will resolve all of your doubts and offer youa customized insurance plan .
When payment protection insurance is for a mortgage, the mortgage company should ensure that the policy truly covers your real risks and meets your needs.
Is it mandatory to take out payment protection insurance with a mortgage?
No, no entity can force you to take out insurance with your mortgage , but they do offer a bonus for taking it out. In other words, they improve the conditions of your mortgage if you add payment protection insurance, life insurance or a pension plan.
Look for a mortgage that is not subject to bonuses, freely choose what you want and separate the cost of the insurance from the cost of the mortgage.
Does payment protection insurance pay off?
Only you know what you need to sleep peacefully.
There are situations where it is a good idea to hire one, for example when you are self-employed, you know that you will not be entitled to unemployment benefits or there is a very large gap between what you receive from your salary and what you will receive from unemployment benefits.