Mortgage Protection Insurance Explained

Mortgage protection insurance, also known as mortgage payment protection insurance (MPPI), is one of three broad classifications of an umbrella of insurance products known as payment protection insurance (PPI). Mortgage payment cover is a short-term insurance product designed to benefit people who are displaced from work because of illness, accident, or involuntary redundancy. Benefits under the coverage are usually paid out in periods of either 12 months, or 24 months, depending on the plan. When a covered event occurs while the insured is a full time employee, and after 30 to 90 days of coverage, the insurance kicks in immediately.

Mortgage protection insurance is designed to help people meet their monthly mortgage payment obligations in the event of unemployment or due to incapacity that means they cannot work. Many people rely on their monthly income to pay their mortgage. Allowable coverage under the plan is usually a up to a maximum amount defined by the provider. Many people buy the protection in combination with their mortgage. However, more and more consumers are recognizing the benefits of buying the protection on the open market from a standalone insurance broker.

Mortgage Protection Insurance from Burgesses

The growth of the independent insurance broker has coincided with expansion of the internet and consumer backlash over unethical selling by large banks and high street lenders. Many lenders have long combined mortgage protection insurance with consumer loans. Some have pressured borrowers into believing the coverage was required as part of obtaining the loan. Some lenders have not even mentioned the protection cost to borrowers, but have added the cost into the loan repayment, with merely a note in fine print of the disclosure.

Even worse than deception and manipulation, some consumers have been sold mortgage cover in spite of being ineligible to collect benefits. Covered people must be full time employees at the time of protection and not of retirement age. Other exclusions may also apply, depending on the provider.

In 2005, the Citizen’s Advice, a consumer advocate group, filed a super complaint to the office of Fair Trading that alleged mis-selling practices within the payment protection insurance industry. The Office of Fair Trading (OFT) and the Financial Services Authority (FSA) both conducted investigations. The FSA imposed fines and sanctions on some sellers and also developed new regulations for PPI. The OFT appointed the Competition Committee to perform further investigation. Ultimately, the developments not only benefited customers directly, but it also benefited by creating greater consumer awareness about the benefits of protection insurance and market opportunities through brokers.

Mortgage Protection Insurance

The benefits of mortgage protection insurance are very similar to those offered by the other two main types of payment protection insurance. There are some slight differences in purposes and plans, however, between the mortgage payment cover and the others. Loan payment protection insurance (LPPI) is intended to provide short-term assistance for involuntary redundancy in the form of a monthly income. It typically offers the customer up to percentage of their income in coverage, similar to mortgage payment insurance.

The third protection insurance product is standard income payment protection insurance (IPP). This plan is the simplest of the three. It is simply a monthly payment of up to percentage of the covered person’s normal monthly income. Covered events are the standard forms of unemployment protected by the other protection types. The income can be used for whatever purpose the policy holder decides, whether for rent or just general day to day living expenses.

Historically, premiums for all the payment protection products have been somewhat high through the large institutions. One of the many advantages of independent broker plans is that they are 40 to 80% cheaper than bank or lender plans. Independent specialists also maintain a good reputation for customer-focused service. They advocate for consumers in the market and work hard to arrange the best products and costs for them. Brokers usually have relationships with the leading insurance providers available and gain access to most of their best products. This is why consumers benefit.

Obtaining a detailed quote through a broker is simply given their expansion through the internet. Customers can quickly fill out a simple questionnaire and often get product and rate offers within a short while. Brokers help narrow down the search. Because of the development in the broker market and consumer awareness of the payment cover industry, there is an increase in consumer purchase of the products.

Along with recognition of broker benefits, consumers are also finally starting to realize that the State assumes little to no responsibility for unemployment assistances. Those that do receive assistance typically receive very little support and it does not normally come until several months after the involuntary redundancy begins. By this point, many homeowners have lost their homes or face overwhelming debt. This is why consumers need to be proactive and create their own assistance plans.

It is worth remembering that paying your mortgage will not be something that will cause you financial stress if you have the cover as it provides a tax free amount for every month that you are unable to work due to illness, injury or redundancy (up to set limits and after a qualifying period).

Mortgage protection insurance, loan payment protection insurance and income payment protection insurance are all great products at prices available in the open market. Some people do not take their benefits seriously until it is too late. Families that rely on provider income need security. Payment protection covers offer the best short-term unemployment benefits to Brits. There is no reason that consumers should not explore the options. Unless people have great savings or other funding sources, the protection is needed in times of illness, accident, or involuntary redundancy.