Mortgage payment protection insurance

Mortgage Payment Insurance from British Insurance

Mortgage payment insurance (also known as mortgage payment protection insurance - MPPI) is a short-term insurance cover that provides benefits to displaced employees who are out of work due to involuntary redundancy, illness, or accident.  Commonly sold in combination with mortgage loans, the insurance provides benefits in the form of monthly payments for a period of 12 to 24 months, depending on the cover plan.  It is not designed to offer long-term unemployment protection.  For many homeowners, some form of payment protection insurance is vital to financial well-being when unemployment is caused by one of the covered events.

Mortgage protection insurance is one three common types of payment protection insurance.  The other two are loan payment protection insurance and income payment protection insurance.  All three covers are intended to support short-term periods of unemployment or being out of work due to incapacity, but there are some subtle differences. Mortgage payment insurance is often sold with mortgages because it is linked to mortgage obligations.  Borrowers can take out the cover generally for up to 75 per cent of normal monthly income, or 1,500 pounds, whichever is lower.  Benefits of the protection kick in 30 to 90 days after the first day of the claim, which is common to most of the payment insurance portfolio of products.

Loan payment protection insurance is similar to mortgage payment protection in that it is designed to assist with debt obligations such as credit cards and loans. Consumers can typically obtain coverage for up to 100 per cent of debt, subject to the provider’s own limits. The maximum allowed coverage, however, is typically something up to 75 per cent of income, or 1,500 pounds, again similar to mortgage cover.  Like mortgage payment insurance, it can cover the three staple events of accident, sickness, and involuntary redundancy. Loan cover is often sold in combination with various forms of debt.

Another common payment cover is income payment protection.  Income cover is a standard short-term assistance insurance which simply provides benefits of up to a percentage of the policyholder’s monthly income during the benefit period.  It will typically carry a maximum of 1,500 pounds of coverage. 

The main purpose of income payment protection insurance is to help sustain individuals or families that rely on monthly income payments for their lifestyles.  Income payment cover is sometimes confused with income protection because they have similar names and are often used synonymously.  Income protection, however, offers longer-term benefits, up to the age of retirement.  Income payment is not beneficial for long-term support.

More and more consumers have become aware of the benefits of some time of payment protection, whether it is from mortgage payment protection insurance, loan payment protection, or income payment protection.  Surveys within the consumer market show that only about one in three homeowners currently carry some type of payment cover.  However, increased awareness and reduction of State assistance have contributed to the fact that about 60 per cent of new homeowners are acquiring mortgage payment cover or other of the payment protection products.

One of the reason for the increased prevalence of payment protection is that consumers have seen payment protection insurance in the news regularly over the last several years.  While much of the news has not been good for the industry, it has been good at providing consumers with education on the products and how to get the best deals.  Consumer advocate groups, led by Citisen’s Advice, facilitated a super complaint to the Office of Fair Trading (OFT).  This resulted in investigations by both the OFT and the Financial Services Authority (FSA).  The FSA followed up their research with fines and sanctions of some protection insurance sellers, as well as new regulations.  The OFT appointed the Competition Commission to further investigate the industry.

Much of the consumer outrage stems from common mis-selling practices applied by large banks and High Street lenders.  These institutions have long corned the market on payment protection insurance  by pressuring or deceiving customers.  Most unethically, they have sold plans to customers that are ineligible to ever receive benefits from protection.  Part time employees, retired people, and people with pre-existing conditions, have all been improper targets of banks and lenders.  Along with these mis-selling tactics, lenders have often packaged mortgage payment insurance and loan payment protection products with their loans.  This is not necessarily bad in itself, but most of them do not communicate to customers that they may have access to better deals.  Many lenders have implied to loan customers that they had to buy the protection to get the loan.  Others have simply added the premiums to loan repayment costs, with only a footnote in the fine print of disclosures.

The benefit of the publicity of payment protection insurance has been promotion of independent providers who specialise in products like payment protection.  Standalone providers tend to operate in a more ethical, customer friendly manner because of their independence.  Some consumers are still being duped by mis-selling practices, but it is not as much from the banks and High Street lenders anymore.  Some online loan sellers are taking up the practice of mis-selling combined loan and insurance products that greatly added to the borrowers cost.  Consumers need to be cautious when looking online for loans.  Insurance independent providers are focused on insurance products and customer service.

Unfortunately for homeowners, with the current environment of payment protection, consumers must educate themselves and rely on themselves for protection.  The OFT, FSA, and Competition Commission are working to help eliminate unfair selling practices, but it is a gradual process.  Lenders are working hard to stay one step ahead.  Their ability to work through the internet makes things more challenging.  This is precisely why the best mortgage payment protection is available from an independent broker.  The independent provider maintains relationships with the insurance industries best providers and usually offers the best covers and rates.  Consumers can efficiently submit a questionnaire online and receive a selection of product and rate information for mortgage payment insurance.  Independent providers can offer premiums at 40 to 80 per cent discounts off bank or lender rates.

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