Mortgage payment protection insurance
Mortgage Payment Protection Insurance from British Insurance
Mortgage payment protection insurance is a form of payment protection insurance (PPI) designed to guard against the loss of your home in the event you can't keep up with mortgage payments due to illness, injury from an accident, or because of involuntary redundancy.
For many people mortgage repayments are their single biggest monthly expense and represent their biggest concern in relation to finance – that they will lose the roof over their head through no fault of their own. For this reason specific mortgage payment protection insurance, often called MPPI, is popular with people who do not need a broad payment protection policy but simply want to ensure they hold on to their most important asset should unforeseen circumstances arise. It is also the sort of policy often chosen by people who find broad PPI cover simply too costly.
Once a successful claim is made and the cover kicks in, a tax-free income will be provided by your insurer to meet the cost of your monthly mortgage repayments, either in full or to a certain percentage, depending on the insurer’s policy terms and conditions. It is worth pointing out that a mortgage is in effect a gigantic loan – one you may think you will always be able to keep up with. However, illness, accidents and involuntary redundancy do happen. All would probably leave most people struggling to keep up with their repayments, putting their home at risk of the dreaded repossession.
Mortgage payment protection insurance is usually not obligatory – that is, in most cases you will not be required to take it out as a condition in order for your application for a mortgage to be successful. However, the range of products on the market is vast, and it all comes from a wide variety of providers, offering varying levels of value, as with many products.
Levels, Limits and Longevity
MPPI policies that cover one hundred per cent of repayments should cover both the usual monthly bill plus the interest repayment. They will also often cover attached monthly costs such as buildings and contents insurance. But not everyone is guaranteed to be able to get cover, and some factors are likely to influence your level of protection. For instance, if your income is suddenly cut off because of a long-standing illness, which has perhaps not had an affect on you for years, but has re-appeared, you may not be covered – check the small print first. Likewise, those who are declared as self-employed, ie sole traders may also not be eligible.
Other common features include limits on how long the insurer will pay out for – although they will usually pay out for an extended length of time, it is usually only around 12 - 24 months. Will you need one hundred percent cover for the whole period or just part of it? Other things to check for include how long you would have to wait before a policy kicked in – this is often between 30 and 60 days after you lost your income– a lot of providers will backdate the payments, some even to the very first day that your income was cut off.
The premium you pay your provider will depend on factors such as your age and what percentage of your monthly payment you want to be covered – either a certain slice acceptable to yourself or 100 per cent if you feel this is necessary and if this is within the insurer’s limits. How many eventualities you want covered may also be a factor – some will cover mortgage payments only if you have been made redundant, or only if you become ill.
Perhaps this is what you want – but compare prices on these variables with a number of providers before signing on the dotted line. Likewise don't assume because you haven't asked that your payments will be protected in the event of all the usual eventualities under a general MPPI policy they will – read all the terms and conditions in depth.
A big mistake many people make when seeking mortgage payment protection insurance is to simply go with the policy available through their lender or with the first or biggest insurance name they come across on the high street. Ask a random number of passers-by in the street and quite a few will not even be sure what mortgage payment protection insurance is. Those that do may well be unaware that it is provided not just by the big boys - the well-known banks and building societies - but by standalone providers who may be able to get you a better deal – by up to 40 per cent in some mortgage protection insurance cases.
Choose with Care
UK Mortgage payment protection insurance is a product in a market that remains under very heavy scrutiny. As a payment protection insurance product, it comes under the remit of an ongoing investigation by the Competition Commission, the findings of which are expected in 2009. This started as a result of the market being referred to the Commission by the Office of Fair Trading, which found some providers had been selling forms of payment protection insurance to people who were unsuitable for it.
With this in mind take care – whether you have decided you need it and are shopping around – or whether you are being offered it by your mortgage provider. The Citizens' Advice Bureau makes useful, simple, recommendations that can guard against getting stung unnecessarily – such as always reading the small print, checking mortgage insurance is not automatically included and added on to the cost of the borrowing, and checking the exclusions.
Although there is no shortage of homeowners who aren't even totally sure what mortgage payment protection insurance is, this shouldn't lead to some people paying over the odds. Make sure you aren't one of them and shop around and follow impartial advice – the market is one in which it is accepted that providers have not always acted scrupulously. That said, mortgage payment insurance is very necessary and a sensible option to many mortgage holders – just make sure the policy and price is right for you.
