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Mortgage Payment Protection Insurance The Do's And Don'ts
When you've taken out a mortgage you've make a long-term
commitment to maintain the monthly repayments for the full
duration of the mortgage. That's going to be over many years but
you're making that commitment without the benefit of a crystal
ball - no one knows how your circumstances are going to change,
for good or bad. So that must represent a big risk. Mortgage
Payment Protection Insurance (MPPI) is one of a range of
insurances that includes life insurance and critical illness
insurance, which you can reduce that risk and protect your
family's finances.
The purpose of MPPI is to ensure that your mortgage repayments
will continue to be paid if you're off work for an extended
period due to accident, sickness or unemployment. Just consider
the risks that this type of insurance is designed to alleviate:
Home repossessions run at about 90 per day. Most of these are
due to financial problems associated with unemployment.
One third of all people aged between 25 and 34 have experienced
unemployment for more than a month.
During the term of their mortgage most people experience at
least one period of illness, or the repercussions of an
accident, which will keep them off work for more than 3 months.
If you have a standard repayment mortgage, you're well advised
to set the value of monthly MPPI cover to equal the value of
your monthly repayment plus your life insurance and home &
contents insurance premiums. However, if you have an interest
only mortgage, then your cover also needs to include the monthly
cost of the investment plan you're using to repay the mortgage
at the end of its term. Also remember that if your mortgage
repayments subsequently change due to interest rate movement,
then you need to contact your insurer and get the policy
similarly modified. Oh yes, the nice bit - if you claim then the
income payout is totally tax-free!
11 Top Tips for buying
Mortgage Payment Protection Insurance
Don't think that you can only take out MPPI when you arrange the
mortgage. You can take out MPPI at any time.
Be aware that some mortgage lenders will try to pressurise you
into taking out MPPI along with your mortgage. If this happens,
make sure you find out how much extra the cover will cost each
month and then get on the Internet and get a few competitive
quotes. Most people will find savings of up to 60%!
Mortgage lenders will only quote you for the cover needed to
meet your monthly mortgage repayments. Remember our advice to
include cover for the cost of your mortgage life insurance, your
home & contents insurance and the cost of any investment plan
you have allocated to repay your mortgage (the latter item
applies only to interest only mortgages).
If your employment is seasonal or casual you won't be able to
claim on an MPPI policy. Every policy has what are called
exclusions and seasonal and casual work is just a typical one.
Exclusions are the circumstances under which you cannot make a
claim. Always read these exclusions before you take out the
policy and if you can see that your circumstances mean that
you're unlikely to be able to make a valid claim, don't buy the
policy. In some cases, the policy exclusions will eliminate 50%
of potential claims.
Don't automatically opt for the cheapest MPPI policy. The
conditions under which policies pay out do vary so check them
out carefully. Premiums are always a reflection of the extent of
the exclusions in the policy, the level of cover provided and
the insurers general marketing strategy.
Don't get confused by the different names given to MPPI. It can
also be described as Accident Sickness and Unemployment
Insurance, Payment Cover and Payment Care. Basically, they all
do the same - but remember to check out the exclusions!
Most policies state that you have to be off work for a minimum
period of time before you can make a claim. The maximum period
you'll find is 60 days but many policies reduce this to 30 days
- and some will then backdate the payment to the first day you
were off work. You'll find full details about these aspects in
the policy's Terms and Conditions. Always check these out before
you buy and remember when you're comparing prices, to compare
like with like.
Don't confuse MPPI with Mortgage Indemnity Insurance (MIG).
Mortgage Indemnity Insurance p rovides cover for a mortgage
lender for any losses the lender might suffer as a result of a
property on which they provided a loan being sold for less than
the amount of the loan. Any payout under a MIG policy goes to
the lender, not you!
If you already have Permanent Health Insurance your may not
need MPPI. Check out the terms of you PHI policy.
Be aware that there is a level of duplication between Critical
Illness Insurance and MPPI. MPPI will pay you an income during
the insured period for any illness that prevents you from
working. Critical illness Insurance will payout a lump sum if
you are diagnosed with any of the chronic illnesses listed on
the critical illness policy. So if you have a critical illness
claim, then you will almost certainly also have a claim on your
MPPI policy. However, if the illness that's keeping you off work
is not listed on the chronic list, and all ordinary illness
aren't, then only your MPPI policy will payout.
Shop around. As with most types of insurance, the Internet is
the cheapest place to shop and many sites will enable you to
arrange cover immediately online. Try searching under mortgage
payment protection insurance rather than just mortgage
protection. That search term is totally specific and you're
bound to find what you want.
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