Flexible age rated MPPI guide
- 27TH AUGUST 2007
House prices continue to increase and the more they do the larger the mortgage we require. This continuing spiral upwards means that more and more people are tying up more and more of their income into affording their home. This leaves them vulnerable if for any reason they should loose their income and the cost of their monthly mortgage payments are not otherwise covered.
To help protect future mortgage payments many borrowers take mortgage payment protection insurance (MPPI). This insurance typically provides benefits payable for up to 12 months in the event that the insured person looses their income through accident, sickness or involuntary unemployment.
There are many firms offering to sell you this type of cover including those lending or arranging the mortgage. However you need to be carefully and shop around because prices do vary substantially and some products can be sold at a premium rate of over £5 per £100 of monthly benefit.
Whilst those lending you the mortgage or arranging the mortgage for you will probably offer you MPPI insurance as an added option, you are not obliged to purchase that cover from them. Independent providers often offer more competitive rates especially if they operate on the internet where overheads can be much lower.
British Insurance, who is one such independent provider or MPPI on the internet has come up with a brand new product which is age rated. This product is now highly competitive for anyone aged from 18 to 25 years of age with premium rates in some cases falling as low as £0.75 per £100 of monthly benefit. That means a monthly benefit of £1,000 could cost as little as £7.50 a month. The product also remains competitive above that age range but the competitive advantage reduces as the age increases.
How does this work
Traditionally MPPI cover would attract a single monthly premium rate per £100 of monthly benefit selected. If you were eligible to purchase the cover and the insurer accepted the short proposal form you completed then you got the same premium rate as everyone else. A very simple rating system which was thought to work well.
In practice logic tells us that those who are over 50 are more likely to be ill and are likely to take longer to recover from an illness or an accident. Regrettably those over the age of 50 often find it harder to obtain new employment once they become unemployed.
At the other end of the scale those under 25 are usually fitter, recover quickly from injury and find it much easier to locate a new job if they are made unemployed.
With the age rated MPPI policy age is taking into account as a rating factor. This makes this policy much more attractive to the younger person and less attractive to the older person.
As with other MPPI rating systems gender occupation, health, smoking habits and the like are not taken into account in fixing the premium rate.
There are cover options under this age rated MPPI cover which make it flexible and those cover options will affect cost.
Subject always to the maximum benefit limit, the higher the monthly benefit you select the higher the monthly premium.
If you want accident, sickness and involuntary unemployment cover then that will be more expensive than just selecting accident and sickness cover or just involuntary unemployment cover.
There are also options of ‘excess periods’. These can vary from one month to three months with the higher excess period producing the lowest premium. For example a 26 year old selecting a 30 day excess period would pay a monthly premium rate of £1.80 per £100 pound of monthly benefit selected. If the excess period was increased to 90 days then the premium rate comes down to £1.60 per £100 pounds of monthly benefit. The mid term excess period of 60 days would produce a premium rate of £1.70.
What are the basic eligibility requirements?
These are the basic eligibility requirements. You should read the full policy wording to check all the terms and conditions as even if you are eligible to take out the cover some aspects of the cover may make the policy less suitable if you fit a certain criteria.
The first prime eligibility requirements are that you permanently live and work in the UK and have been actively working for at least six months immediately prior to the policy start date. If you have periods of sickness during that six months then that may not qualify you as actively working.
The mortgage payment protection insurance policy is designed only to cover mortgage repayments so you will need to have a mortgage in your name. You can set the benefit level to include both capital and interest repayments and related life assurance and household premiums. You can even select to insure an additional 25% which can help if your monthly mortgage repayments increase due to interest rate rises. You can not select a benefit level which exceeds £2,000 per month or 65% of your gross monthly income. It is the lower of these two figures which is used to set the maximum amount you can insure.
