How To Buy Cheap Mortgage Protection Cover

Are you looking for cheap mortgage protection cover?

Insurance is a product where you are buying a bit of paper (the policy document) with a promise that in the event of a certain event happening you will be compensated for the financial loss. Of course the hope is you will never need to find out how good that promise really is.

So how do you select the best option, or should you just go for a cheap mortgage protection cover?

Comparing Mortgage Protection

How To Buy Cheap Mortgage Protection CoverMake sure you compare apples with apples.

Whenever you purchase a product or service and are looking at the prices you need to ensure that you are comparing apples with apples. Too often people may think they are comparing similar products when in fact there are some huge differences, and this is often the case with insurance as it can be quite a complex product which makes it difficult for people to understand the implications of the way the policies are written.

Often when comparing different mortgage protection products offered, and especially with the banks and some of the insurance companies which sell directly they refer to mortgage cover as straight life insurance cover whereas others may have a mortgage payment covered included.

The straight life cover of course will be a lot cheaper, but also a lot less effective.

What Is Important?

The two most important things is insuring (1) that you know what you’re getting and then (2) that it works when required.

Most people know that should have some insurance, but really do not know what insurances are most important or the differences between the different types of insurance. Instead they get “sold” the policies offered online, from mailers, at the banks or from what an insurance salesperson suggests they should have. Of course all of the policies seem to be worth having, but are they really good value?

A policy that is good value should be something that is going to cover those major risks. There are many risks that are not suited to insurance especially those where there is a high likelihood of claims.

Why Insurance Is Often Expensive

The cost of any insurance is made up from: claims paid + administration + profit.

You will notice that some insurances are more expensive that others and generally those are the covers where there are more claims and potentially those with a lot of administration too.

CashWhen you insure the contents of your house you get excess options, and the higher the excess you chose the less the cost of the insurance. This is because the number of claims is reduced – with a $50 excess you might make a number of claims each year whereas with a $500 excess there are a lot of things not worth claiming on.

The same happens with health insurance. If you have a policy that covers doctors costs then you need to make a claim for each visit and therefore the administration and claims costs for the insurance company is high; hence the premiums are high too. Many people can comfortably afford the cost of the doctor’s visits and therefore just insure the specialists and surgical costs which are generally the higher costs that are hard to budget for.

For the same reason, income cover is more expensive than life cover.

This is because it is more likely that you will be unable to work for a period of time than it is that you would die.

Statistics show that a high number of people have periods of time where they are unable to work for periods of time during their working life. If you have a mortgage then being unable to work and therefore earn an income can be very serious and even lead to you defaulting on your mortgage which could mean losing your home. For this reason most insurance advisers do suggest that you include some level of mortgage repayment cover within your insurance plan.

Statistics also show the life expectancy for people and while some people do die early, the insurance companies can easily work out the chances of someone dying early and set the premiums accordingly.

You really need to ask the question if it appears that one is expensive and one is a cheap mortgage protection cover.

Of Course Price Is Important

Of course the price is important as we have all worked hard for our money however price should not be the only consideration when you buy insurance or other products or services for that matter.

Would you drink the cheapest wine, drive the cheapest car, use the cheapest parachute, get the services from the cheapest accountant or visit the cheapest prostitute?

People will offer look for the cheapest accountant and end up missing out on tax credits and while they have paid a lower fee the actual cost savings are really false.

With a cheap prostitute on the other hand you may get more than you bargained for!

What About With Insurance Policies

Yes, price is important and paying more doesn’t automatically mean you will get a better product or service.

The difference with insurance is often the way that insurance companies structure their premiums. Some companies will target younger people making their premiums cheaper but later in life if you stayed with that same company your premiums can escalate quite significantly and over the lifetime of the policy it is no cheaper. Some insurance advisers will sell you a product with a level premium which means the premium is more expensive now but does not increase this can be good in some instances and is always good for the adviser as they are more commission.

A mortgage is a long term commitment but over time the hope is that you will reduce your mortgage and therefore reduce your risks.

For this reason a temporary or term type cover is generally more appropriate so once you have established exactly what is required then price will often be a significant factor when selecting which policy to go with.

What Other’s Say…

Website “The Simple Dollar” has a few tips including;

Get several quotes – an insurance adviser should do this as a matter of course
Avoid riders and additional insurance – get what you need and don’t be “sold” additional stuff which often sounds nice but is not required.
Say “no” to one-company agents – banks, dealing direct with an insurance company and even some insurance advisers only have one option which means you have no choice now or in the future.
Don’t wait – get insurance now before your health deteriorates.
Bundle coverage – this way you pay less fees and may even get a discount. It does always work but is something that you should consider.
Check the financial stability of the insurer – most in New Zealand are stable, but you want to know that the insurance company is able to pay at claim time which could be years in the future. The Reserve Bank lists the financial strength of all licensed insurers in New Zealand.

These are a few simple tips, but a second opinion and good advice should not be underestimated.

Would You Buy Cheap Mortgage Protection Cover?

Of course you can – but should you?

Insurance is really one of those products where you do get what you pay for, so going for the cheap option will generally not provide you the same level of cover.

What you should really do is determine what cover you really need and then look at the options available to provide the protection that you require. This will depend on your ability to cover risks yourself from savings, investments or passive income and it can also mean making a decision not to fully cover certain risks. Most good advisers would be able to help you work through the various risks and prioritise what may have the greatest financial impact and therefore what needs to be covered by insurance.

Of course, the hope is you will never need to make a claim.

Insurance is not designed to make you rich at claim time, it is only there to provide some financial compensation should an event take place causing loss that you would otherwise not be able to financially cope with.

Don’t go for cheap mortgage protection cover only to be disappointed at claim time.