Short guide to flexible age related mortgage payment protection insurance
- 4TH SEPTEMBER 2007
The first important item is that unlike most mortgage payment protection insurances (MPPI) the premium rates for this product take into account the insured’s age. That means lower premiums for those who are younger and higher premiums for those in their later years. This can be done because those who are younger tend to be fitter, recover from illness quicker and if they are made redundant usually find it easier to get a new job.
Like other mortgage payment protection insurance (MPPI) policies the premium rates do not take into account the insured’s occupation, their smoking habits, weight or life styles.
The system divides insured’s into nine age bands and charges premium rates accordingly. Once the policy has started the premium rate is set and does not change just because you move up an age band. This does not mean that premiums are guaranteed and the insurer has the right to increase or reduce everyone’s premium subject to a notice period. Historically this class of business has been profitable for insurers and premiums have come down but no one can see into the future.
The policy is flexible. The cover provides for up to a maximum benefit period of 12 months based on your monthly mortgage outgoings and the benefit level you have selected. Cover is for being unable to work due to involuntary unemployment and or accident and sickness. Insured’s have the choice of selecting to insure both involuntary unemployment and accident and sickness or just involuntary unemployment or just accident and sickness.
There is also a choice as to the level of excess between the time of the first eligible day of claim and the time that the first payment benefit will be made. For instance an insured in the age band 18 to 25 choosing both involuntary unemployment cover and accident and sickness with a 90 day excess would enjoy a premium rate of £1.30 per £100 of monthly benefit insured. If they wanted to reduce the excess period to 30 days then the premium rate would increase to £1.45 per £100 of monthly benefit insured. By taking out only accident and sickness cover the premium rate for a 90 day excess would drop to £0.75 per £100 of monthly benefit insured or £0.85 for a 30 day excess.
These premium levels are low compared to some of the standard rating systems offered by well know lenders where premiums of £5 to £6 per £100 of benefit can be quoted. You should certainly shop around.
No mortgage payment protection insurance policy is without exclusions or limitations. For instance the policy pays out benefit for up to a maximum of 12 months. That should cover most eventualities but it will not cover all eventualities such as long term illness or permanent disability. If that is the type of cover you are after then you may wish also to look at a policy type called income protection. The premiums for those policies are more expensive and they do not cover involuntary unemployment.
MPPI cover excludes pre-existing conditions and that may not suit you if you regularly suffer from ill health and that is the main reason for taking the policy out. Cover for the self employed also has special conditions attached to it. For instance involuntary unemployment for the self employed requires their business to have permanently ceased trading.
You may be in that lucky group who have reserve funds to carry you over a problem period, friends and family who would help out or an employer who offers a good benefits package if you are sick or made redundant.
There maybe some help from state benefits but these are usually ‘assessed’ so that they go to only those most in need. As a general guideline state help with paying a mortgage is not available if you have savings of over £8,000 or a full time working partner. Where state help is available then it only covers interest and not the capital repayments and only for the first £100,000 of a mortgage. State help is not there for the first nine months if the mortgage was taken out after October 1995.
Given the flexibility of the MPPI cover some people effected by the covers limitations still select to take out those sections which meet part of their needs to give them partial peace of mind.
