Mortgage Payment Protection Insurance (MPPI) covers your mortgage payments if you’re unable to work due to accident, sickness or unemployment. MPPI payments are made to you monthly. Older policies may have paid your mortgage company directly. Unlike long term Income Protection insurance (IP) they cover unemployment but most will only pay out for a maximum period of 1 to 5 years (2 years is most common).
MPPI is one of the most widely held financial protection insurance products in the UK. If you arranged your mortgage prior to 2011 you would have been offered this insurance as an integral part of the mortgage application process. It covers your mortgage repayments and usually allows you to select up to an additional 25% to 50% help toward your living expenses and household bills.
“ Different experts suggest the average household needs the equivalent of six to nine months net income saved as a contingency fund. However the majority have less than two months in readily accessible savings, with 70% having no provision to cope with a sudden drop in income (Sergeant Report 2012). ”
Financial vulnerability of the over 50s
For the over 50s this product can be useful for you if you do not have large savings and are making mortgage repayments each month. A large number of the over 50s were made redundant in the last recession and then struggled to get back into the workplace. Consequently a large percentage of those thrown out of work will have been forced to take a large chunk out of their savings and frequently could only find work at a far lower salary.
This combination increased the financial vulnerability of over 50s in the UK for whom mortgage payment protection insurance could make a lot of sense.
For the over 50s, as with other protection products, prices are higher. This reflects the increased likelihood of a health related issues arising as well as the unfortunate reality that people over 50 take longer to get back into work than those in their 30s and 40s.
Shop around for your policy
Since 2011 mortgage providers have been prevented by their regulator from offering this product at the time they sign up people for a mortgage. This was imposed to encourage people to shop around for the best mortgage payment protection deal. Hence there is now a greater need to ensure you have the information you need to decide if this type of cover is right for you.
The leading price comparison web sites offer the ability to compare prices however independent reviewers suggest their selection of providers is very limited. Most mortgage brokers offer this cover, however many are tied to one or just a limited panel of providers.
If you have existing health issues, you may find the online specialist are willing to offer terms. If not you’ll find a broker of IFA with knowledge of the wider market could offer the expertise you require to address your needs.
Buying Mortgage Payment Protection Insurance
Who is it for? Do you have much money in savings? If your income is absorbed by your mortgage repayments and your other household bills each month, saving may be impossible. This product offers a low cost solution during a period in your life when, after a month or two of being unable to work, your savings would be exhausted. Cover includes unemployment which is not covered by a (long term) Income protection policy.
When does it pay out? If you’re unable to work due to accident, sickness or unemployment.
How much do you get? Your monthly mortgage repayment and usually up to 25 percent for additional household expenses. However, the maximum benefit is restricted to a given percentage of your net income (typically 50 to 75 percent). Benefit is paid for between 1 and 5 years (the majority of policies offer 2 years as standard). Also most policies have a maximum overall monthly payment limit of limit of between £1500 and £3000.
How does it pay out? By monthly payments for the agreed benefit period or until you return to work.
What should I look out for?
Mortgage payment protection insurance does not pay out for:
- Claims arising out of pre-existing medical conditions
- Unemployment claims if there is reasonable evidence that you knew you might be made redundant when you took out the policy.
With one or two exceptions, providers only check into the information you submitted to them when applying for MPPI at the time you claim. For example, they will ask your doctor about the details of your condition including when it first arose. Long term Income Protection (IP) is fully medically underwritten when you take out your policy, so you know from the outset what you are and aren’t covered for. Therefore there is more uncertainty that MPPI will pay out if you are anything other than scrupulously honest when completing the application.
Always read the application carefully especially any declaration you must confirm applies to you
Read the application carefully and ensure you meet the criteria for a policy. This is frequently set out in a declaration at the beginning of the application process. Acceptance criteria vary between providers as well as price.
As well as through advisors, these policies can be bought directly online. It is a highly competitive market where the lowest prices are offered for the best risks.
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