Tuesday 17 July 2018

Job loss cover

Consumers are worried about how they would pay their monthly mortgage bill in the event of redundancy. But the products available come with a health warning

Charlie Weston

Charlie Weston

CONSUMERS are taking out redundancy cover on their mortgage payments in their thousands in response to growing fears about job security in the private sector.

Known as mortgage payment protection or mortgage repayment protection, this type of policy will cover your mortgage repayments if you lose your job through redundancy, an accident or sickness.

But some financial experts have questioned the wisdom of these policies claiming they are difficult to get a payout on, expensive and the policies are full of exclusions.

If you are successful with a claim, the maximum period you will be paid for is 12 months.

Confusing names

Mortgage repayment protection is different to mortgage protection insurance and income protection.

Mortgage protection insurance is a requirement of your mortgage. It's a policy, which will repay the outstanding balance of your mortgage in the event of your death.

Income protection pays out a regular cash payment that replaces part of your lost income if you have a long-term illness or disability and you can't work. It is also called permanent health insurance.

Mortgage repayment protection or redundancy cover is often confused with mortgage protection due to their annoyingly similar names.

Mortgage repayment protection is optional, and covers you for an agreed monthly amount (usually roughly equal to your monthly mortgage repayment).

The amount is payable if you cannot work due to illness, accident or compulsory redundancy for longer than four weeks. Redundancy cover is only available to arms-length employees, and not directors or self-employed people. The claim will be paid for a maximum of 12 months.

Redundancy cover sales

Sales of mortgage repayment protection or redundancy cover are going through the roof with the jobless rate rising.

The latest figures from the Central Statistics Office show the unemployment rate at 6.3pc with some analysts now expecting it to rise to 10pc next year.

And fear about job losses is rife. A survey by employment law consultancy group Peninsula Ireland found that eight out of 10 workers fear they will lose their jobs as the recession hits harder.

Members of PIBA (the Professional Insurance Brokers Association) are among the biggest sellers of mortgage repayment protection. PIBA resells a product provided by British based Cardif Pinnacle. Enda Burns of PIBA said the product "was flying out the door at the moment", while members were seeing a big rise in inquiries.

Ciaran Whelan of the Irish Broker Association said it was seeing a big rise in inquiries for an Assurant Solutions product it sells.

A poor product

Authorised adviser John Geraghty of online discount broker, LABroker.ie, maintains that people were being panicked into taking out mortgage repayment protection. But he feels it is a poor product.

Mortgage repayment insurance is undoubtedly expensive. For example, Bank of Ireland charges €4.75 per €100 of monthly mortgage repayments covered.

So if your monthly mortgage repayment is €1,500, this cover will cost you €71.25 a month, and there is no tax relief available. First Active charges €4.76 per €100 of mortgage repayments covered.

Most mortgage repayment (or payment) protection pays out if you are ill or disabled and are unable to work, or have been made redundant, according to the 'Tab Guide to Money, Pensions & Tax 2009' (€15.00).

But Mr Geraghty maintains it is hard to have a successful claim.

"People don't understand how many get out clauses these companies that supply mortgage repayment insurance have to avoid making a payout."

Some of the policies will not pay out for up to 120 days from the date you are no longer able to work. Mr Geraghty feels this lessens the value of these policies.

But the biggest problem Mr Geraghty has with these policies is that your claim will be denied if the insurer has reasonable cause to believe your job may be under threat. He argues that most people in the private sector at the moment have reasonable cause to believe that they may lose their jobs.

Another authorised adviser who has problems with mortgage repayment insurance is Liam Ferguson of www.ferga.com.

"I don't think it is a good product. To get a claim paid for redundancy you have to prove that for each of 12 months you have been unable to get any form of remunerative employment at all. So if you start flipping burgers that will be a sufficient reason to throw out a redundancy claim."

Business Newsletter

Read the leading stories from the world of Business.

Also in Business