What is mortgage protection insurance?

Mortgage protection insurance is an optional insurance cover available for home loan customers. It’s a type of consumer credit insurance (CCI) and is designed to cover mortgage repayments in certain circumstances. The insurance pays your home loan instalments if you become sick or are injured, and can also help your family to make the repayments in case of your passing. Some policies may also cover loss of employment if you’re fired but do not cover resignation.

You can take out this insurance policy at the start of your mortgage and pay an annual or monthly premium to get the cover. Generally, casual or part-time employees and self-employed borrowers working less than 20 hours per week are not eligible for this type of insurance cover.

The cost of this insurance cover depends on several factors, such as:

• Type of policy:

If you choose a single policy, the premium depends on your income. If you opt for a joint policy with your partner, the cost will vary based on their income.

• Loan amount:

The total amount of your home loan influences the cost of this insurance.
Repayment instalment: The amount you are required to pay as a monthly instalment also determines the insurance premium.

• Age:

To calculate the cost of this policy, the insurers consider your age on the commencement date.

• Policy details:

The premium depends on the inclusions and exclusions in the policy.

The cover can vary from one insurer to another; generally, your mortgage repayments are covered under the following circumstances:

• Loss of employment only if you’re made redundant or are fired but not if you quit your job
• Loss of income due to permanent or temporary disablement
• If you pass away, the insurance covers your mortgage repayments so your family doesn’t have to bear the burden

The policy excludes any pre-existing condition. So, if you’ve consulted a medical practitioner for any ailment in the 12 months before buying the insurance, any mortgage protection insurance claim arising due to this existing condition will not be covered.

The insurance cover is available only if you’re unable to make the mortgage repayments due to an event affecting your income. It doesn’t cover other expenses, such as utility bills, food expenses, car registration, and phone bills.

It can also be expensive over the duration of the loan. For example, if you have a 30-year mortgage and pay $1000 per year for mortgage protection insurance, the total premium amounts to $30,000. Whether you need the insurance cover or not will depend on your financial situation and specific circumstances.

You can compare mortgage protection insurance in Australia with other options such as life insurance or income protection insurance in order to make an informed decision.