As the nation’s unemployment total passes two million and the steady drain of redundancies pushes the figure towards three million and beyond during the year ahead, most people recognise the need for protecting the individual homeowner’s investment with some form of mortgage cover. But whose mortgage payment protection insurance (MPPI) cover is likely to offer the most reliable protection if and when the worst comes to the worst.

There might be some people, for example, who put their faith in the latest measures promoted by the government as a plan to help recently redundant homeowners continue to pay their mortgages. This takes the form of the Support for Mortgage Interest Scheme. Just as the name suggests, this is directed towards help with the interest element of any mortgage repayments being paid by the unemployed. Support is restricted to just that element of the mortgage and does not extend to any help at all in the repayment of the mortgage principal.

With effect from April 2009, the scheme has in fact been extended to offer help to those on mortgages of up to £200,000 – double the previous limit of £100,000. Whilst this is a helpful and meaningful extension of the practical benefits of the scheme, the fact remains, however, that homeowners are unable to start claiming benefits under this scheme until they have been unemployed for at least 13 weeks (91 days). That 13-week period, of course, can be a critical turning point in the relationship between mortgage borrower and lender, with the latter increasingly inclined to begin the process of repossession after just one or two missed mortgage repayments.

At the end of the day, therefore, an important comparison can be drawn between the government-backed, but limited, Support for Mortgage Interest Scheme and the full-blown mortgage cover that the individual homeowner can arrange with his or her own mortgage protection insurance. This will cost a monthly premium of course, but the price of those premiums is very modest.

There is also a minimum period of time that the policy holder would need to be unemployed, but this is much closer to the typical 30 days required by most policies, rather than the 90 days expected by some – and therefore generally less than the “waiting” period demanded by the Support for Mortgage Interest Scheme.

Mortgage insurance underwritten by mortgage protection insurance pays out a regular, tax-free monthly benefit which the policy holder can use to pay the whole of the mortgage and not just the interest element. The typical maximum level of cover is £1,500 a month, or the equivalent of 50% of the policy holder’s normally earned gross income, whichever is less. In other words, it offers wider mortgage cover than the Support for Mortgage Interest Scheme.

A final additional advantage with individually tailored mortgage payment protection insurance is that it almost always readily converts into an insurance policy covering far wider risks than solely the threat of unemployment. For the same modest monthly premium, mortgage cover usually guards against the risks not just of unemployment, but also against the possibility of losing income from work because of the need to take unpaid leave to recover from an accident or illness.

The struggling British economy has been responsible for a number of woes currently affecting the housing market, but none can be so painful for the individual homeowners affected as that of repossession. Yet repossessions alone have increased by more than two-thirds during the past year, not to mention the steadily increasing proportion of those falling into serious arrears with their repayments. Mortgage insurance represents a way of avoiding the arrears building up in the first place and can help avert repossession.

Mortgage insurance can take care of some of the most common reasons for individuals getting into trouble with their repayments. During the current recession, of course, chief of those reasons, of course, is likely to be redundancy and the indeterminate period of unemployment that follows whilst looking for another job. Equally devastating blows, however, can be dealt by the need to take unpaid leave of absence from work because of an accident or illness – the effects of which can all too easily take several months or more from which to recover. Mortgage insurance would come to the rescue in any of these events by paying out a regular, tax-free monthly benefit from which the whole, or a substantial portion, of the mortgage repayments could be made.

Figures recently released by the Financial Services Authority help to show just what a critical role mortgage insurance could play. During the past year, for example, the Authority says that the number of repossessions has shot up by 68%. Furthermore, in reports carried by the daily Telegraph newspaper on the 18th of March 2009, the Financial Services Authority revealed that the number of homeowners falling into arrears with their mortgage repayments had risen by 31%. These statistics were considerably higher than those previously released by the Council of Mortgage Lenders.

Those homeowners protected by mortgage insurance, however, would find that their mortgages continued to be paid even when they were incapacitated from work, by an accident or illness, or unemployed, because of compulsory redundancy. This type of insurance continues to pay out the insured benefits regularly each month until the policy holder is earning normally once again after having recovered from the accident or illness or having found alternative employment, or for up to a typical maximum of 12 months (some policies offer the option of extending this period to 24 months, on payment of an additional premium). For the vast majority of homeowners, therefore, the period of guaranteed insurance benefits with which to keep up the mortgage repayments lasts quite long enough a time in which to recover from most accidents and illnesses or in which to find a new job.

Most sized mortgages can be covered in this way, since mortgage cover can generally be arranged amounting to a typical maximum of £1,500 a month, or the equivalent of 50% of the policy holder’s normally earned gross salary, whichever is less.

Mortgage protection, loan protection, and income payment protection are three insurance solutions that form an umbrella of insurances known as payment protection insurance. Each pays tax free monthly benefits after a covered event, that helps sustain you during involuntary redundancy. In fact, many providers also let you cover accident or prolonged illness with your policy. Since the State is very rarely involved in providing assistance, this collection of products is your best opportunity for unemployment cover.

Many people don’t like to think about losing their job or being forced out of work. It happens, though, and your family needs protection. With a mortgage cover policy, you can secure your home by keeping up with your monthly mortgage repayments. A loan protection plan helps you to manage monthly debt obligations. Income payment protection could be used to pay bills, buy groceries, or meet other ongoing financial expectations.

Overview of unemployment cover

The usual period of benefits payouts with most payment protection policies is 12 months or 24 months. Your first payment would typically arrive at 30 days after the insured event, 60 days after, or 90 days after. The sooner the better for most people. The highest amount protection normally available is either 1500 Pounds or half the normal gross monthly income, whichever is less.

Before you get to deep into your examination of products, be sure you are eligible for benefits. Most policies require that you are employed full time for a period of at least six months before you can get benefits. Retired people, part time employees, and people with pre-existing medical conditions are among those usually excluded from getting benefits from payment cover.

Sources of protection

As you begin to explore the market for payment protection, realize there are two common providers of protection. Large banks, or financial institutions, are one. The other is independent insurance specialists. Financial institutions are more of a general purpose financial provider, and independent specialists offer more expertise on insurance.

Financial institutions developed a bad reputation from years of mis-selling practices used by some providers, as well as pressurized selling involved with bundling insurance with loan products. Pressuring borrowers into adding expensive cover to their loans was common practice for many companies. Following a 2005 super complaint by Citizen’s Advice, though, the sector was evaluated, and a new 7 day ban restricts the sale of payment cover to borrowers.

Now that you have the freedom to find unemployment cover without the pressure from lenders, you should take advantage of the opportunity to get a good deal. Independent insurance specialists have a better reputation for helpfulness, service, and support. They also have much less expensive premiums. You can often find loan cover that is up to ten times less expensive when purchased through an independent provider. Mortgage protection is about four times cheaper. Income payment protection is around five times less expensive than it would be from a financial institution. Your family will appreciate the peace of mind it has in knowing that your lost job income will not lead to financial ruin and suffering.

Do you have a payment protection insurance policy? If not, than your family is possibly at risk for financial trouble in the event of involuntary redundancy. Payment protection is an umbrella of insurance products that effectively serve as unemployment protection. These products are your best source for financial security in case of redundancy, and possibly even accident or illness. Don’t expect State assistance for unemployment as it rarely comes, and the amount is often not enough.

Mortgage protection, loan payment cover, and income payment cover are the three insurances that form this payment protection insurance portfolio. Although they each pay benefits for unemployment, their design is a bit unique. Mortgage cover is mainly intended to help you keep your home during unemployment by making your monthly mortgage repayments. Your loan cover would help with loan obligations. Income payment protection is useful for several financial purposes. Each pays monthly benefits that are tax free for the length of the payout period.

Details of the payment protection policies

Are you familiar with the terms and conditions that are common to payment protection insurance policies? If not, you are not alone. However, to get a fair deal, you need to know what you are buying. The first key is to know if you are eligible to benefit from a policy. You have to be employed full time for at least six months, in most cases. It is not an insurance designed for retired people or part time employees. People with pre-existing medical conditions are also excluded in most situations.

One term to recognize is the benefits payout period for a prospective policy. Benefits are usually paid over the course of either 12 months, or 24 months. The first payment would arrive at 30 days, 60 days, or 90 days after your insured event takes place. This is a very important consideration in getting the right policy. While you get to pick the amount of cover you want, your highest benefit is often 1500 Pounds, or half your normal monthly gross income, whichever is less.

Financial institutions and independent insurance specialists

Financial institutions are large banks that work with many products. This makes them more generally aware of the sector. Independent insurance specialists usually have more knowledge of the insurance sectors and can therefore be of more help when it comes to selection of the best policy.

Independent insurance specialists also have much better rates on unemployment protection than do financial institutions. Loan cover is usually about ten times less if you get it from a standalone provider. Mortgage protection is around four times less. Income payment protection insurance is about five times lower.

You may wonder why anyone would buy protection from financial institution. The truth is most won’t knowingly. However, for years, customers were duped into buying plans at banks in combination with loan solutions. The lender would often pressure them into getting it. Recently, a seven day waiting period was placed on lenders before they could sell payment cover to a new borrower. Take advantage of this new freedom to shop around.

Redundancy insurance is what you need to protect your family financial in the event of involuntary redundancy. No one plans to lose their job, but it happens. Some people make the mistake of ignoring this cover, or assuming it is provided by the government. However, your best solution is to be proactive and to have a policy in place should this unforeseen situation occur to you.

There are actually three products that form the payment protection insurance sector that most often serve as your redundancy insurance. Mortgage protection is a policy that helps you maintain your home by keeping up with monthly mortgage repayments. Loan protection is used to keep your credit score high by meeting ongoing loan and credit card payment obligations. Income payment protection is helpful to pay bills and cover other ongoing monetary requirements. Though unique, they all pay benefits through monthly paychecks that replace your lost job income.

A closer look at redundancy insurance

To be able to collect benefits under the terms and conditions of a payment protection policy, you must typically be employed full time for at least six months. Commonly excluded are retired people, part time employees, and also those with pre-existing medical conditions.

If you are eligible, consider other important features before selecting the right plan, such as the payout period. Some policies pay benefits for 12 months, but others pay for 24 months. Also understand when your benefits payments would begin to arrive. Some policies make payments as soon as 30 days after the covered event, while others don’t start until 60 or 90 days later. Recognize that the maximum benefit is usually 1500 Pounds, or half your normal income, whichever is less.

How to make the right choice for cover

To make the right selection for redundancy insurance, you must understand the nature of payment protection. This sector has come under scrutiny recently because of common practices that had gripped the sector for years. Financial institutions were criticized for mis-selling solutions to ineligible consumers, and several were fined in 2007 by the Financial Services Authority. Also targeted by consumer advocates and agencies was the practice of bundling insurance with loans, which led to consumers being pressured to buy overpriced policies.

Thanks to a review of the sector by the Competition Commission, under the direction of the Office of Fair Trading, there is now a proposed 7 day waiting period before banks can sell new borrowers a payment cover. This has freed consumers to explore the open market and find a better deal with an independent insurance specialist. Known for more industry expertise, specialists sell redundancy insurance, or payment cover policies, for much less. You can also usually get a policy that covers not only redundancy, but accidents and illness as well.

Redundancy cover is an insurance solution to protect you and your family during involuntary redundancy. For a broader protection, many insurance providers also allow you to add cover for accident and illness, should your employer not provide it. The actual products that usually are purchased in pursuit of this insurance protection are mortgage cover, loan cover, and income payment protection. These three products form the payment protection insurance umbrella of solutions.

Don’t rely on the State to assist you during unemployment. Some people get assistance, but not a high percentage of people do, and the amounts are usually low. You need to buy one of the products mentioned. These insurance pay monthly benefits that replace your lost income from a covered event. Mortgage cover helps you make monthly mortgage repayments. Loan protection helps you meet loan and credit card obligations. Income payment protection helps you meet bills and pay groceries.

Terms and conditions of payment protection

As redundancy cover, the payment protection policies usually have some important features in common. One important feature is the benefits payout period. Most policies pay you benefits for either 12 months, or 24 months of unemployment. Some policies begin payments just 30 days after the insured event, but others don’t start until 60 or 90 days later. Your maximum allowable protection is usually 1500 Pounds or half the normal monthly gross income that is lost, whichever is lower.
You generally must be employed full time for at least six months in order to collect benefits from payment protection. Redundancy cover is not intended for retired people, part time employees, and others with pre-existing medical conditions. Still, some providers have attempted to sell to these consumers in the past, so be cautious.

Separating good providers from the bad

One of the most important steps to getting a good value in redundancy cover is to find the right provider. There are two basic types – financial institutions and independent insurers. Institutions are big companies that sell various financial products. Independent insurance companies have more expertise in insurance and usually have better reputations for service, support, and better premium rates.

In 2005, Citizen’s Advice filed a super complaint with Office of Fair Trading (OFT) that brought up mis-selling of policies to ineligible consumers and bundling of insurances with loans that was common practice for many banks. The Financial Services Authority dealt with mis-selling by fining many high street companies in 2007. The OFT had the Competition Commission review the sector, and it offer recommendations, including a seven day ban on the sale of payment cover by lenders to new borrowers. These moves enable you as the buyer to find much better rates in the open market for redundancy cover solutions.

Income protection pays out over the longer term which could be up to your retirement age if necessary and would only provide you with an income if you lost your own to incapacity. Income payment protection on the other hand would pay under different circumstances and for so long. However both policies are often called the same name which causes some confusion. For the sake of this article we are focusing on income payment protection.
You would choose how much of your own income you want to protect against the chance of you falling victim to redundancy or becoming incapacitated. This amount would need to be agreed by your provider and is then the amount of money you get back in tax free benefit each month. Generally you could insure your income up to £1,500 of half your gross monthly income whichever was less. You would need to wait for a period of deferment to pass and this could be between 30 to 90 days. Your income might continue to pay out for a period of 12 months or it could continue supplying you with benefit for as long as the 24th month. Checking the terms before taking out your cover is essential as they vary so much.

If you had to wait for up to 90 days before seeing any money from your income protection you could struggle in the meantime to find money for your outgoings which would cause additional stress. If this would be the case then you should ensure you would be able to claim as soon as possible on the policy. Also bear in mind you would have to pay more for premiums if your cover paid out twice as long.

Income protection can be taken out to protect against redundancy and incapacity together in the same policy. You would then have peace of mind of being eligible to make a claim should you be unfortunate enough to suffer either of these events. You could also choose what events you wanted a policy for. If you just wanted to take out insurance against unemployment alone you could or you might just choose to take out a policy for incapacity alone. Your provider might also be generous enough to give you carer cover. If carer cover is given you could make a claim on your policy in the event that it was one of your family members who became incapacitated and needed you to remain at home to take care of them. This would have to be checked in the terms offered by the provider as not all are generous enough to give you this additional protection. Finally ensure that you have checked what exclusions are included in a policy as it is these that can stop the policy holder from being eligible to make a claim on the insurance.

The biggest reason of course why you might want to consider income protection insurance is that you would be provided with an income to replace your own if you suffered redundancy or incapacity. This income would be used by you towards meeting any essential outgoings and would greatly ease your circumstances during a stressful time when looking for work or recovering from illness or accident.

To take out income protection insurance you would choose up to so much of your monthly income to protect. This would be limited and generally you could choose to protect up to half of your gross monthly income or £1,500 whichever was the least amount. The amount that you choose is then paid back to you each month you remained unemployed or incapacitated for a period of time which is usually set at between 12 months and 24 months. There would also be a period that you would have to stand to before making a claim and providers usually state this as between 30 and 90 days with some offering to date back your benefit to the first day.

Income payment protection is one of the most versatile forms of the payment protection that you can take out as it does not limit to one particular outgoing such as mortgage or loan protection does. The income supplied from the policy might be used towards you being able to maintain your rent each month, it could keep food on the table for your family or you could continue to meet your utility bills. You could choose a policy to protect against both events or you could just choose to protect against the possibility of redundancy alone or just to safeguard against being unable to work. If you have chosen a very generous payment protection provider then you might also be eligible to make a claim if you were unable to work due to looking after a family member who had become incapacitated. Carer cover can be included but you would need to check in the terms offered by the provider at the time of taking out the policy.

With income protection insurance you have to ensure you are taking out the right type of policy for your needs as there are two similar policies often called by the same name. The policy we have outlined here is actually called payment protection insurance. This insurance pays out over the short term and can pay out for redundancy. Income protection on the other hand would not pay out for redundancy but it would continue paying out for up to your retirement age if it should be needed. Therefore before you take cover you do have to ensure that you are looking for income payment protection.

Anyone who has taken out a loan or arranged the issue of a credit card is almost certainly to have been offered some form of loan cover. But this popular form of payment protection insurance has come in for such heated debate and criticism of late that it can sometimes be difficult to know whether you have the right policy for your own personal circumstances or, more particularly perhaps, whether you are paying the most competitive price for it.

Thanks to the huge profits that appeared to be theirs for the taking, banks, building societies and other financial companies for a long time pushed sales of payment protection insurance so hard that currently some 20 million policies are estimated to exist in Britain (according to a report in the daily Telegraph newspaper on the 6th of February 2009). The report continues that so little care was taken over many such sales, however, that an estimated two million (one in ten) will have been to individuals who could never make a claim under the policy (because they are already retired, for example, or have a pre-existing medical condition).

Following a rigorous investigation of this sector of the insurance industry, measures are now in place to rein in the worst of the mis-selling practices and consumers should be in a better position to know what the loan cover they are buying will actually do. Comparing the costs of various policies, however, can still be somewhat confusing.

All types of loan cover will generally protect the policy holder against the principal risks of accident, illness and unemployment, paying out insured benefits in such events in order to ensure that loan repayments can be maintained. However, policies will invariably incorporate a form of excess in the shape of a waiting or “qualifying period” – being the minimum period for which the policy holder needs to be off work or out of work before a claim can be made. This period can vary from between 30 days to up to 180 days. Clearly, this makes a considerable difference to when the cover will start paying out and the shorter the qualifying period, the more expensive the premiums are likely to be. The balance between the excess (the length of the qualifying period) and the price of the monthly premiums, therefore, needs to be taken into account when comparing policies.

In addition, there will be the difference between those policies that treat the qualifying period as a genuine form of excess, leaving the policy holder to shoulder the burden of any financial loss during that period, and those that, at the end of the relevant qualifying period, then backdate benefit payments to the first day off work or out of work. Once again, those that backdate benefit payments are likely to prove more attractive, but might attract higher premiums.

Finally, it is important to consider the maximum period during which benefits will be paid. The typical maximum for most forms of loan cover is 12 months (unless, of course, it is possible to resume normal working before that time), but some policies offer the option of extending that period to up to 24 months, on the payment of an additional premium.

If you succeed in obtaining a loan, or if you have one already, probably one of the last things you might want to consider is paying an additional premium each month for the benefit of loan insurance. Skimping on this useful piece of protection, however, could prove a false economy. When compared with the hundreds of thousands of people currently struggling to manage their debts, however, the modest cost of loan insurance premiums might instead appear a small price to pay for increased peace of mind and financial security.

Individual casualties of the current economic recession are the record numbers of people in Britain struggling with unmanageable debt. Indeed, some analysts have estimated that as many as one in 60 people are facing insolvency – the inability to pay their debts as they fall due – according to a report in the Guardian newspaper on the 6th of February 2009. This proportion of the population includes not only the 29,000 or so actually declared bankrupt last year, but the estimated 110,000 who have negotiated formal individual voluntary arrangements with their creditors and the estimated 700,000 or so who are struggling to manage their finances through less formal debt management plans.

Anyone with a loan, of course, has a debt – and usually an ongoing debt that needs to be serviced by regular, monthly repayments. That debt can begin to spiral out of control when it is no longer possible to maintain the monthly repayments. And the most common reason for it becoming impossible to maintain the repayments, of course, is because of a temporary loss of income that stretches over several months or more. This can happen when an accident or an illness prevents the individual from going into work. Whilst some employers might continue to pay a sickness benefit in lieu of pay for a certain time, even this will be withdrawn eventually – and it is then that the employee faces severe financial difficulties. This same pressures will be felt, of course, by those made redundant and face the loss of any regular pay at all during the period of unemployment until alternative work van be found.

Loan insurance is designed to cover the policy holder against all such risks. In the event of an accident, illness or redundancy, the insurance pays out a regular, monthly benefit from which to make the repayments on any outstanding loans or borrowing and, thus, helps to avoid the pitfalls of spiralling debt.

Loan insurance can be used in this way to protect loans and borrowing of practically any scale. The premiums are based on each £100 of repayments insured, so it is easy to calculate the multiples required to cover the loan or loans in question. As a general rule of thumb, it is possible to insure up to a typical maximum of £1,500 a month in this way, or the equivalent of up to 50% of the policy holder’s normally earned income, whichever is less. One in payment, the insured benefits continue to be paid every month that the policy holder remains incapacitated or unemployed, or for up to a typical maximum of 12 months, whichever is the shorter duration.