When you apply for a mortgage, lenders might ask if you have a mortgage protection
plan. This means that, if you die during the length of your policy, the cash
sum paid out by life insurance can be used to help pay off the remaining
mortgage balance. For some, Payment Protection Insurance is a tempting
alternative, but is life insurance on a mortgage the same as PPI? Let’s find
out.

Is life insurance on a mortgage the same as PPI?

No, they are two different products. There are several differences separating
payment protection insurance and a relevant life plan. Just some of these
differences include:

Payment conditions

Payment protection insurance pays out in the event you had to stop working due
to an injury, illness or death – this is usually in the form of monthly
payments that help cover mortgage repayments. A relevant life plan, however,
pays out after someone passes away, also known as end-of-life cover. The money
paid out is usually in the form of a lump sum.

Recipients

The person receiving the payment also varies between policies. A business life
insurance policy, for example, pays out either to the business the employee
works for or their family members, depending on the terms. In the context of
life insurance on a mortgage, this goes to family members. Payment protection
insurance, however, is given to the person who is unable to work, as the goal
of the policy is to help make repayments that you wouldn’t be able to make due
to earnings lost through injury.

Which is the right policy for me?

There are a few factors that affect whether life insurance on a mortgage or
Payment Protection Insurance is ideal for a potential policyholder. These
include:

Your job

If you’re self-employed, you may decide that PPI is a worthwhile investment. If
an injury leaves you unable to work, this will drastically affect your income
and your means of repaying your mortgage. Payment Protection Insurance could
provide you with the peace of mind you need at this time to focus on your
recovery so you can get back to work quicker.

However, if you’re employed full time and your job comes with good sickness
benefits, you may decide just to take out a life insurance policy. It’s
definitely worth checking your contract to see what you’re entitled to as
standard statutory sick pay (SSP), which is paid by your employer, only lasts
for up to 28 weeks, so if you need more time off than this, you’ll need to find
a way to cover your bills. Plus, SSP is usually less than what most people
typically earn, so it may not be enough for you to live off, making PPI
essential.

Financial situation

If you have a mortgage, a relevant life policy is one of the most important
insurance packages available to you. Taking out a relevant life policy in these
cases means that your loved ones can have peace of mind from knowing they’re
able to pay their bills or settle any debts following your passing.

For a household reliant on one income, investing in a PPI policy might be
prudent. If the breadwinner falls ill and is unable to work, payment protection
insurance will be essential to help cover mortgage payments, rent or bills
until they are back on their feet.

Picking between the two

Luckily, there’s no need to choose between life insurance and PPI. They are
different financial products, so it’s possible to have both. Having PPI and a
relevant life plan means that you limit the financial risk you face from injury
or death, protecting yourself, your company and your family for the foreseeable
future.

Try WIS Business Protection

If you’re looking for life insurance policies that protect you and your family
from the worst-case scenario, get in touch with WIS Business Protection to find
out more about the insurance policies we have available.