A mortgage is the biggest investment any of us will ever make and is essential to many as the only way in which we can purchase our own home. It is difficult to stress just how important keeping up payments on mortgages is, and as a result mortgage payment protection insurance is a vital part of our outgoings.
Mortgage payment protection insurance (MPPI) is very similar to other insurance policies in that it involves the policyholder paying into a monthly plan. This is then invested by the insurers to create a fund that can be used to provide the holder with monthly tax-free payments in order to keep the mortgage payments up to date in the event of he or she being made redundant.
When will the policy start to pay out?
There are many differences between policies and providers and it is essential that the homeowner is aware of the exact specifications of the policy they are taking out. Some policies pay out for different times in different amounts and others that have different points, and these are all important factors. One vital understanding is that there will be a delay between redundancy on the policy beginning to pay out; this can range anywhere between 30 days to as much as 90 days in some cases.
It is also to be understood that the amount paid per month will not be equivalent to a full month’s salary. In general it will be so that the policy pays out equivalent to half of the holder’s gross monthly salary, or a sum of £1500 whichever is the lesser figure, though this can vary among providers.
Mortgage protection insurance policies also vary in the length of time for which they will pay out; some policies will pay out the 12 months and others are as much a 24, this depending entirely upon the provider and the insurance policy is taken out. It is essential that the consumer takes this into account, as paying a higher rate can lead to the granting of a longer pay-out period.
Eligibility is a vital area to investigate to, as there are certain things that render policies unenforceable: an already existing illness, only working part-time, and being retired are not covered. The policyholder must have been in full-time employment for the six months to be eligible.
In 2005 an investigation was carried out by the Competition Commission following a complaint from the Citizens Advice Bureau to the Office of Fair Trading and it discovered that there had been instances of mis-selling in respect of payment protection policies. A number of well-known high street lenders were found to be coercing their customers into taking out their more expensive policies, and there have been examples of policies being sold to people who were retired, those who were in part-time employment and also those who are suffering from illnesses which meant the policy was irrelevant. At the same time, the Financial Services Authority (FSA) conducted its own investigation, and made similar discoveries.
These investigations resulted in fines being levied on the guilty parties, and in the FSA and the Commission recommending certain changes to the methods in which protection payments insurance and mortgage payment protection insurance are to be sold. The major change will be a seven-day period during which it will be illegal for lenders to sell the consumer mortgage protection.
Shop around
One of the main problems surrounding payment protection insurance has been the belief among many that is required one takes out the payment protection policy or mortgage payment protection insurance that is offered by the lender. In many cases consumers complained that the inference had been this was a necessary purchase. This is not the case, as you are equally able to buy from a standalone, independent provider.
As it is, independent providers of mortgage payment insurance have been found to be considerably cheaper than the high street brands; in fact, in terms of mortgage protection you can find policies for a quarter of the price found on the high street, and for income protection it can be as much as a tenth of the high street price.
The consumer is also advised to consider carefully the level and type of cover taken out: in many cases they may be covered for accident or injury at work via an employer’s policy, and hence would be duplicating cover by taking this out again. Careful checking with your HR department is strongly recommended.
The family into which mortgage payment protection insurance falls includes many more such policies, such as those that cover one for repayments on loans other than a mortgage, and those that are built to provide an income for day to day living should you succumb to any of the agreed conditions. This allows for a greater scope in buying policies, and assures the consumer of a much wider choice of cover.
Don’t rely on state assistance
The sad fact is that should you not be covered to a suitable degree you will find the state is not forthcoming in helping keep your mortgage repayments; this brings about the possibility of missing mortgage payments and entering into arrears. Benefits such as incapacity and jobseekers allowance, the two standard state benefits, will barely cover a weekly grocery bill.
Although the mortgage company will do all it can to prevent repossession, there is a point where it becomes inevitable and losing one’s home is something that nobody wants to undergo. This is why mortgage payment protection insurance is a vital investment rather than a luxury.
The advantage of being able to shop around for mortgage insurance is highlighted by the savings that can be made by using an independent provider. We already mentioned these above, but it is worth stressing that shopping around will ensure the consumer gets the best deal possible. Mortgage payment protection insurance will be much more cost effective with an independent provider, one not bound and tied to branded packaged deals, than with the heavily advertised high street deals, and the former is where the consumer should consider buying their protection.
Related Posts