Accident, Sickness And Unemployment

According to the latest figures from National Statistics online, as at June 2007 the unemployment figure reached 1,650,000. Becoming unemployed can cause many problems, not least the fact that there may not be enough money to pay the bills.

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Most people will agree that their home is their most important material possession, yet if mortgage payments cannot be made, the security of a home can be taken away.

According to the Council of Mortgage Lenders, (CML), home repossessions have risen by 30%, resulting in an estimated 14,000 properties being repossessed in the first six months of 2007.

With over 125,000 mortgages currently in arrears, the Ministry of Justice said that during the second quarter of 2007, almost 33,000 additional mortgage possession claims, (which is the first stage of the repossession process), were issued by the courts. At the same time as the number of people losing their homes rose, figures compiled by Credit Action show that total UK personal debt at the end of June 2007 stood at £1,345bn. This had increased by over 10% during the previous 12 months.

In addition to the above, then during the first quarter of 2007, there were 30,075 individual insolvencies either (bankruptcy or Individual Voluntary Arrangements) in England and Wales; this represents an increase of nearly 24% on the same period a year ago. During the same three month period at the start of 2007, the number of County Court judgments issued has risen to a near 10-year high. A total of 247,187 consumer debt related CCJs were issued in the first three months of the year, the highest quarterly total since 1997.

With these statistics it’s easy to understand the importance of covering your debts.

Clearly you cannot rely on state help to cover your mortgage payments if you cannot work. There is no help for the first nine months of unemployment or disability for mortgages taken since October 1995. Existing borrowers only qualify for benefit if they qualify for Income Support.

You can buy cover to protect your mortgage payments if you have an accident or become ill and cannot work, if you become unemployed, or to provide full cover for accidents, sickness and unemployment. The terms and conditions under which you can claim differ with every policy, so you should always check them very carefully.

The Benefit period is the length of time you can claim monthly payments for, and these vary for each policy. You can select the time period you want to be covered (1 year, 2 years etc) but the longer you want the cover for, the more expensive the premiums will be.

There is always an Initial Exclusion period at the start of the contract, during which time no claim can be made. This normally only applies to unemployment and is 30, 60 days or longer. This exclusion is usually waived if you have just taken out a new mortgage or remortgage.

Some policies also have an excess period, for each & every claim. This is a certain number of days, 30, 60 or more, which are excluded from the claims payment. For example with a 60-day excess, and a claim for 65 days, 5 days are paid.

Others have a waiting period after which time the claim is paid in full. This is called Back to Day One Cover. For example, with a 30 day waiting period back to Day One Cover a claim period of 65 days would be paid for the full 65 days.

Some policies offer the option of excess periods or Back to Day One cover. You will need to decide which is the most appropriate for your circumstances.

Most providers will cover your mortgage payment and a little extra for mortgage related bills, such as pensions, insurances etc. They usually offer an extra 25% and sometimes up to 100 % but may have conditions on what this money can be used for.