Mortgage Payment Protection Insurance Explained

Mortgage payment protection insurance is a form of cover designed to guard against what is a nightmare scenario for many people – the sudden inability to keep up with repayments on a property through no fault of their own.

A part of the payment protection insurance market, mortgage payment protection insurance (or MPPI as its sometimes known) kicks in when a policyholder suddenly cannot meet repayments due to a loss of income through illness, injury or being made redundant. For many people the cash which goes to back to a mortgage lender is the single biggest monthly outlay they must make, and is usually the most important too. Failure to keep up with payments can eventually lead to repossession, a far worse result than increased interest or a bad credit rating. MPPI policies are popular with people who feel they do not need broad payment protection plans covering a whole variety of commitments, and with those who are simply more concerned about the loss of their homes above all else. They are also taken out by people who find general payment protection insurance either too detailed or too expensive.

Mortgage Payment Protection Insurance From Burgesses

Mortgage protection is not usually essential, meaning you will not be forced to take it out when getting a home loan, and buyers should shop around the market to find the policy which best suits them and provides the best value. A few policies will allow you to cover 100 per cent of a mortgage repayment, while others will set limits or give you a choice of how much you want covered – say 60 or 70 per cent. When deciding what you need try to imagine what you have put aside or what other ways of paying a mortgage you would have without a job and decide on a level of cover accordingly.

Bear in mind the higher the percentage you would like covered, the more expensive a premium is likely to be. One way of reducing the cost of many premiums is to choose one which covers a limited number of eventualities. Think about whether there is a particular circumstance you are most worried about. Some products cover your mortgage only if you are made redundant. However, many will only pay out on a redundancy after you have held the policy for a set amount of time. Needless to say, you must get your notice after having taken out a policy to qualify, as opposed to taking one and trying to claim on the day you are notified.

In order to be sure about your level of cover you should also consider your medical history. If you had a serious illness some time ago which suddenly resurfaces and renders you unable to work, you may not be covered. Always check the small print before signing for a policy.

When making a successful claim the policy is quite straightforward when it kicks in. The insurer will provide you with a tax-free sum towards your mortgage repayments and often will cover the cost of the interest too, if providing 100 per cent protection. They may also cover the cost of buildings and contents insurance policies. However this will not be paid indefinitely – all policies come with limits of up to around 12-24 months. Some will pay a high percentage before dropping down to a lower amount before finally expiring completely.

Mortgage Payment Protection Insurance

Many people wrongly believe mortgage payment protection insurance is only available through mortgage providers or well-known insurance firms. This is not the case. In fact the Competition Commission is investigating the payment protection market and has already ruled there is a problem with providers packaging loans together with cover – often selling protection far more expensive than is available elsewhere. Elsewhere the Office of Fair Trading has already found that some consumers have been mis-sold cover they did not need or were not fully qualified to get.

Therefore, consumers should be wary of accepting a deal from the very provider offering them a mortgage. Instead, it can pay to look further than high street cover providers, banks and lenders. Good deals can be found by turning to smaller, independent companies who do not offer cover in connection with loans. In some cases they charge 40 per cent less for mortgage payment protection insurance.

It’s easy to assume that you will somehow be able to make ends meet in the unlikely but entirely possible event of getting injured or falling very ill. Statutory sick pay has to be provided by UK employers, but remember this will only run for a limited period – a maximum of 28 weeks according to current Law. Think about the size of your monthly repayment too – if the worst came to the worst could you pay it with savings and for how long? Those with high levels of savings, generally the minority of British consumers, may not need mortgage protection, but the majority would not be able to cover even two or three months worth of payments.

The State support system is also almost certain to prove inadequate for those suddenly left without the means to pay off a home loan. At the time of writing, Job seekers’ allowance currently stretches to a maximum of around £60 per week, a total of £360 per month – not even close for the vast majority. Incapacity benefit is similarly ungenerous and will not be enough to keep up with even the most modest of property loans.

That said, ensure you do not simply take the first decent-sounding deal that comes along. The full results of the Competition Commission’s investigation are not expected until 2009 and you should dig deep to find the best possible policy available. For those still unsure about getting cover, extra help is available. The Citizens’ Advice Bureau offers straightforward tips on insurance hunting, including avoiding taking out cover which is offered hand in hand with a loan.

A mortgage payment protection insurance policy can give you peace of mind over one of the biggest fears – the fear of losing your home. This does not mean you should pay over the odds, so take a good look for the best deals that are out there on the market, and, as with anything, always read the small print.