Guide to Mortgage Payment Protection Insurance
What You Need to Know
- Mortgage payment protection insurance (MPPI) is a type of policy that homeowners take out to ensure that they will be able to keep up with their mortgage repayments even if they lose their job or have to stop working due to severe illness.
- MPPI is not compulsory, though it is estimated around one in five homeowners have this type of cover.
- Even if you do decide to invest in insurance, it is advisable that you still try and bolster your savings to give you a little extra breathing space should you lose your job.
- Above all, having a fully protected mortgage gives you extra peace of mind in uncertain times.
- As a general guideline, you should expect to pay £5 a month for every £100 you wish to cover.
- Be aware that most insurers place a delay of anything up to six months from the moment you claim on a policy to the time they start paying out.
- Most mortgage lenders will offer borrowers the opportunity to purchase a MPPI policy from them. Though this may be the quickest way, it may not be the cheapest.
What is Mortgage Protection Insurance?
Mortgage payment protection insurance (MPPI) is a type of policy that homeowners take out to ensure that they will be able to keep up with their mortgage repayments even if they lose their job or have to stop working due to severe illness.
That is, such policies mean that if you, as a mortgage holder, should fall ill or lose your job, then your insurer will make your monthly repayments for you. Above all, this can mean that will not fall behind on your mortgage commitments should the axe fall, reducing the risk of your home being repossessed.
While taking out a MPPI is not compulsory by law, according to research published by the Association of British Insurers in 2006, around 20 per cent of homeowners now have this type of policy.
Why Take Out MPPI?
State benefits for homeowners who can no longer meet their mortgage repayments, due to illness or unemployment, are limited, meaning, for instance, that if you lose your job, you will have to draw on your savings and will likely struggle to meet your home loan commitments.
What’s more, even if you are entitled to help from the state, this can take several months to arrive into your bank account, by which time your sick pay or redundancy pay may have run out and you may be receiving threatening letters from your mortgage provider.
So, above all, having a fully protected mortgage gives you extra peace of mind, something that is likely to be particularly welcome should you feel your job may be under threat at some point in the future or even if your job security looks quite sound but you have no real savings to speak of.
Additionally, if you enjoy good security but have stretched yourself financially, then an MPPI policy could guard you against a downturn in the economy as a whole.
Potential Drawbacks of MPPI
MPPI is not for everyone. Indeed, according to the consumer watchdog Which? Britons collectively waste millions of pounds a year on taking out unnecessary cover. So, before you sign up for a policy, it’s worth doing your homework and working out if it would be wise for your to get this type of cover. Things you may want to consider include:
Your Job Security: Perhaps the first thing you should consider is how secure your job is. If the prospect of unemployment is highly unlikely, then MPPI may not be for you. You should also consider the benefits offered by your current job. So, for example, if you are a teacher or police offer and fall ill, then the benefits you will get mean you should have no problem meeting your mortgage commitments. If on the other hand you are self-employed, then this type of cover could be a very good idea.
Your Employability: Even if you lose your job, MPPI may still be useless. Most insurers place a delay of anything up to six months from the moment you claim on a policy to the time they start paying out. So, if you are confident that you will be able to find a new position soon after being made redundant, then MPPI may be a waste of money.
How Much Will it Cost?
There is no fixed cost for MPPI; the amount you will be charged varies greatly between insurers and according to what type of over you wish to take out.
However, as a general guideline, you should expect to pay £5 a month for every £100 you wish to cover. So, for example, if your monthly mortgage repayment is £1,000, then your MPPI policy might cost around £50 a month. Of course, you should expect to pay a premium if you want a policy to pay out shortly after you claim on it.
How to find the best policy
Most mortgage lenders will offer borrowers the opportunity to purchase a MPPI policy from them, at the time of the transaction. Given that it’s likely this will be mentioned right at the end of the process, when you are all tired of paperwork, this can be the quickest and easiest option, though be aware that it may not be the cheapest.
Given that you are under no obligation to take out an MPPI policy with your mortgage provider, then it may pay to consult a professional financial advisor to find you the best available deal.
Even if you do not have enough spare cash to enjoy the luxury of professional advice many price comparison websites, such as moneysupermarket.com or gocompare.com, may prove a useful tool in your search for the best deal. Check out the website of the Association of British Insurers (ABI) to find an accredited MPPI provider or broker near you.
- Get your head around the jargon of MPPI with the help of the Association of British Insurers (ABI).