What is mortgage payment protection insurance?
Has the pandemic made you concerned about how you’ll pay your mortgage if you are made redundant or can’t work due to sickness? You can take action to protect yourself and one way to do this is to take out mortgage payment protection insurance (MPPI).
Why would I need it?
For the majority of homeowners, their mortgage is their biggest monthly outgoing. If losing your job or not being able to work due to an illness or accident means you will struggle to pay it each month, it’s sensible to protect yourself.
There are varying levels of mortgage payment protection insurance you can take out depending on what you want to be covered for. These are ‘unemployment only’, ‘accident and sickness only’, and ‘accident, sickness and unemployment.’ The level of cover you take will help determine the cost of the premiums. Consider which would suit your circumstances best.
But do bear in mind that some insurers have added Covid-related exemptions to their policies, so make sure that you check before you take out any protection. Many providers have also begun to cover people who are self-employed. However, it’s always important to make sure you check the small print carefully to make sure you’re not exempt.
Can’t I take a mortgage payment holiday instead?
Many people are taking mortgage payment holidays at the moment due to the impact of Covid on their finances. But it’s important you don't see being able to take a payment holiday as an alternative to MPPI.
Mortgage payment protection insurance is a policy that pays out after you successfully make a claim, so you can pay your mortgage each month. In contrast, a payment holiday means you are deferring paying what you owe.
Also, although you might have been able to take a payment holiday due to Covid, you can’t assume this will continue to be the case. And there are other consequences of taking a payment holiday too. For example, while the advice from the FCA is that a mortgage holiday will not affect your credit record, it could affect future lending decisions.
How much does MPPI pay out?
The point of mortgage payment protection insurance is to cover the cost of your mortgage in the event you need to make a claim. These policies will typically pay out for up to two years. But you can choose for the policy to pay out more than the cost of your mortgage so other bills are covered too. Alternatively, you can opt to receive a proportion of your salary. Again, the level of cover you choose will have an impact on the cost of premiums.
When do I get the money?
You will usually need to be off work for a specified number of days before the policy starts paying out. This can range anywhere from 30 to 180 days. The longer the period you’re prepared to wait, the cheaper the policy will typically be.
So consider your own circumstances. If you’re entitled to sick pay from your employer, bear this in mind when you’re deciding how long you’re happy for the waiting period to be. However, it is possible to get ‘back to day one’ policies which don’t have a waiting period before you can claim.
What other types of protection are there?
Income protection: This pays out a proportion of your salary each month if you’re unable to work due to accident or illness. Income protection policies typically pay out for a longer period than MPPI. Policies vary but they may pay out until you are able to return to work or reach retirement. Income protection tends to be more expensive than MPPI.
Critical illness cover: This will pay you a tax-free lump sum in the event that you're diagnosed with a serious illness covered under your policy. You could use a lump sum to either service the payments on your mortgage, or pay it off completely, depending on the amount you receive.
Life insurance: These policies will only pay out if you pass away. But they're worth considering if you have dependents as they pay out a lump sum.
Who should I talk to?
Life can throw curveballs at us when we least expect it, so it’s really important to have a plan in place in case things go wrong.
If you want a no-obligation chat to find out a bit more about protection and insurance policies, whether it be against illness, accidents or losing your job, I would be happy to help. For insurance business, we offer products from a choice of insurers.
Get in touch with me on 07375 886347 and I’ll be happy to help. Or visit our website at mortgageadvicebureau.com/cambridge.
Because we play by the book, we want to tell you that your home may be repossessed if you do not keep up with repayments on your mortgage. There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances, but a typical fee is up to one per cent of the amount borrowed.