Taking out a loan with Lenders Mortgage Insurance or LMI is not in any way similar to taking on an Income Protection Insurance. In case of unemployment or other reasons which may cause a limit to earnings, repayments will not be covered under an LMI. This is a common mistake among those who take out an LMI.
Lenders Mortgage Insurance is:
- A lender protection in case of a default on a mortgage and loss is imminent.
- It is a one-off insurance payment made once the loan is settled.
- The lender takes care of this process during the loan application.
- In case a borrower defaults or suffers a loss, the lender can claim the loss through LMI then LMI chases the borrower for the loss.
- Only high-risk loans are considered under LMI where the loan is a high percentage of the property value.
Income Protection Insurance is:
- Is often recommended by lenders to loan borrowers so that a percentage of their earnings may be covered in case of the borrowers becomes unable to work.
- The customer or the borrower decides whether or not to take out Income Protection coverage when taking out a loan.
- The type of coverage determines how much will be paid after the qualifying period. An example of this is a payment of up to 75% of the borrower’s regular income after a qualified period of 6 weeks.
If you have more questions about the difference between LMI and IP, get in touch with any of our qualified brokers and we will be more than glad to help. Call us and get free advice about how a income protection insurance package can help you.