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If you are a homeowner with a mortgage to pay, then if you haven't got it already, mortgage payment insurance is certainly something you may wish to consider. You may just think that it is another added and unnecessary expense to add to your list of household commitments, but it can, in times of financial distress such as unemployment or incapacity, literally save the roof over your head.
Mortgage payment protection insurance – to give its full title, or MPPI for short – helps you to maintain your mortgage repayments in the event that you lose your income though no fault of your own. By this it means such things as involuntary redundancy; recovering from an accident or a prolonged illness, all things that could see you without an income.
How does mortgage payment insurance work?
If you have this form of payment protection insurance, should you lose your job to involuntary redundancy or become unable to work due to illness, the policy will pay you a monthly tax free benefit that can be used towards maintaining your monthly mortgage repayments as well as other mortgage related costs such as home insurance.
The benefit will usually kick in anywhere from 30 to 90 days after the covered event happens, subject to the individual policy's terms and conditions. Some providers will allow you to claim just 30 days after you become unable to work and will back date your claim to the first day of incapacity or unemployment, meaning that you get the full benefit of the cover.
You will then continue to receive this benefit typically for up to 12-24 months, again, depending on the individual policy terms and conditions – or when you get back to work, whichever happens sooner.
How much can I claim?
The amount of benefit you will receive will be agreed at the time of taking out the insurance and will be subject to the provider's own limits, but you can typically insure around 75% of your gross monthly earned income (or up to £3,000). The insured amount will include your monthly mortgage repayment as well as insurance premiums for things such as home, life and critical illness insurance. Some insurers will also allow you to include an amount to cover other household related expenses such as utilities and council tax.
Of course, as when buying any type of financial product, it is important that you fully understand what the insurance entails, so never just skip over the terms and conditions – make sure that the protection offers you the cover you need. This includes the ‘exclusions' section too of the policy. Do check that you would be eligible to claim on your mortgage payment insurance policy as things like a pre-existing medical condition, or being a part time worker, or retired, would generally be excluded from the cover.
Shop around
One final point to note is that you are free to shop around for your mortgage payment cover. Despite what your mortgage lender may imply, you do not have to take their policy at the time of arranging your mortgage. And if you already have an existing policy, you can switch to another provider.
Do some homework when looking for your insurance, particularly focusing on the independent providers of the product who are, historically, cheaper than their high street counterparts. Mortgage payment insurance can be an invaluable product to have, but you should not have to pay over the odds for it in order to get the peace of mind it gives.
Many homeowners do not know much about mortgage payment insurance. However they should find out, as it can a great deal for them if they were to become unemployed or suffer accident or illness that meant they lost their income. In fact a policy could mean the difference between paying the mortgage and time and recovering or finding work with peace of mind or struggling. If they struggled and got into mortgage arrears then repossession and eviction is likely.
Mortgage payment insurance would provide the policyholder with an income which is the sum of money they insured against when taking on the cover. This is what defines the premium you pay each month along with the level of cover and age when applying. You are usually able to take out cover for accident, sickness and unemployment together, incapacity only or unemployment only. Age based premiums mean that protection is now affordable to even first time buyers who have stretched their budgets to the maximum.
Being able to maintain the mortgage is essential because even just one missed payment means the lender will be in touch with you. They will want you to make an agreement to repay the arrears on the mortgage and at the same time assure them that you will be able to continue meeting your mortgage payments. This is highly unlikely if you did not have the money in the first place to pay. You would avoid all of this if you have taken out mortgage protection as you would receive a sum of money tax-free with which to pay your mortgage.
Of course there are other alternatives to mortgage payment insurance cover. However none are as reliable as payment protection. You could rely on any savings or redundancy money you might get if made redundant. Any savings might not last long enough to get you through paying your mortgage and of course you would also need money to live on and pay other outgoings at the same time. You would soon put a big hole in redundancy money if you had to survive off it for many months. You could apply for State benefit but you might not be eligible. You would have to be eligible to claim income support, not have a partner living with you in full time employment or have savings over a certain amount. Even if you are you would only receive help with the interest part of the mortgage and then only up to a certain amount each month. You would also have to wait for many months before seeing any benefit.
Mortgage payment insurance would begin to provide you with the income after the time set out in the terms of the policy. This is usually somewhere between the 30th and the 90th day of unemployment. Some providers would also backdate the cover to the first day of becoming unemployed or of being incapacitated. Once the cover has begun to provide an income it would do so for a fixed period of time and then end. This is usually either for 12 monthly payouts or 24 monthly payouts.