Keep up with your mortgage payments if you're out of work
Cover available for accident, sickness and unemployment
Get the right level of cover for you and your mortgage
Mortgage Payment Protection Insurance (MPPI) serves as a safeguard for your mortgage repayments, ensuring they remain manageable even during unforeseen financial difficulties.
This type of income protection is designed to step in by covering your monthly mortgage payments up to a limit of 65% of your gross monthly income, rather than one lump sum, should you find yourself unemployed without fault, or incapacitated due to a severe injury or illness.
In the event of a claim, MPPI policies typically offer a predetermined monthly sum, which can fully cover your mortgage expenses. Some policies even provide the option to receive 125% of your mortgage costs, offering additional financial support to cover other household bills.
The duration for which these insurance policies will cover mortgage costs is generally capped at 12 months, or they may cease payment upon your return to work, depending on which occurs first.
Considering Mortgage Protection Insurance is essential if you're concerned about the ability to maintain mortgage payments during periods of unemployment, especially if you're self-employed and lack access to employer-provided sickness or redundancy benefits.
Also known as mortgage coverage insurance, this product works as a financial safety net for your loved ones designed to prevent mortgage default and the potential loss of your home should you find yourself unable to meet the monthly obligations.
For those seeking broader coverage options, it may be worthwhile to investigate alternatives such as income protection insurance, critical illness cover, or life insurance, each offering different benefits and levels of protection to suit varying needs and circumstances.
Just 6% of the population had any form of income protection (including employer sick pay schemes) in 2021, according to the Income Protection Task Force (IPTF).
Mortgage protection insurance is designed to provide financial assistance if you're unable to work due to circumstances within your policy's coverage. When selecting a policy, you have the flexibility to determine the monthly benefit amount that suits your needs. This can range from simply covering your mortgage payments to opting for an additional 25% to help with other living expenses. Providers typically cap the monthly payout between £1,500 and £2,000.
Upon a successful claim, there is a waiting period, known as the 'deferred period,' which can vary from 30 to 180 days before the benefits begin. It's worth noting that opting for a longer deferred period can reduce your premium costs, but it's crucial to ensure that you can manage financially during this waiting time without undue hardship.
Mortgage payment protection insurance (MPPI) offers varying levels of coverage tailored to your preferences:
Accident and sickness coverage ensures your mortgage repayments are taken care of if you're incapacitated due to serious illness or injury.
Unemployment coverage provides a financial safety net if you lose your job through redundancy, excluding claims related to accidents or sickness.
Accident, sickness and unemployment coverage is the most extensive, safeguarding against the financial impact of job loss as well as the inability to work due to serious health issues.
The cost of MPPI is influenced by various factors such as age, occupation, income, and mortgage obligations. High-risk professions may incur higher premiums.
MPPI is available to self-employed individuals, contract workers, and employees, though certain exclusions may apply.
Exclusions in mortgage protection insurance typically encompass:
Voluntary redundancy
Prior knowledge of potential redundancy
Getting sacked from your job
Pre-existing medical conditions
Certain stress or back-related issues, unless they meet specific criteria
Self-inflicted injuries
For self-employed individuals, unemployment claims are generally not applicable.
It is crucial to thoroughly review the policy terms to understand the scope of coverage and the exclusions before committing to a mortgage protection plan.
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Your mortgage payment protection insurance premiums will depend on a number of factors, including:
There are several alternatives to mortgage protection insurance that you might consider:
Mortgage life insurance provides a lump sum to settle your mortgage in the event of your death within the policy's term. This is typically structured as 'decreasing term insurance', where the potential pay-out diminishes in line with your decreasing mortgage debt.
Critical illness cover offers a financial cushion if you're diagnosed with a specified serious illness, though the range of illnesses covered can differ among insurance providers.
Income protection insurance is designed to replace a portion of your income if you're unable to work due to illness or injury. This type of insurance is available in various forms, providing either short or long-term coverage, and extends beyond mortgage payments to potentially cover other regular expenses.
You won’t always be able to claim immediately upon taking out mortgage payment protection insurance – most have a waiting period of one or two months. When you compare with MoneySuperMarket and ActiveQuote you’ll be able find wait times from:
Zero days – meaning you can claim immediately
One week
Two weeks
One month
Two months
Three months
Six months
A year
The shorter the wait time, the more expensive your premiums will be.
Your job may affect your policy as some occupations carry higher risks than others, meaning you’ll be more likely to get ill or injured – for example if you work at a construction site you might face higher premiums than a computer programmer or secretary.
If you’re self-employed you might also have to pay more for protection – and if you’re a contractor you should double check you aren’t excluded from cover.
Some insurers don’t offer cover for people with pre-existing conditions, and the ones that do generally have certain criteria in place. For example, you might not be able to claim for mortgage repayments if your condition flares up within a certain period after taking your policy out.
You may also need to provide evidence such as a doctor’s note if you take time off for certain conditions – you should check carefully for any exclusions before taking a policy out.
While needing time off work to take care of your mental health is common and recommended, you may find it more difficult to make a claim on your policy. You may have to show evidence that your mental health is making you unable to work.
Check how much your employer is likely to pay you in the event that you get made redundant. If you have worked at your company for several years, the chances are you may get a decent payout, which would mean you might be paying for the unemployment element of your mortgage protection policy unnecessarily.
It’s worth noting that although statutory sick pay doesn’t usually affect short term IP, anything you receive over & above statutory (from your employer for example) can affect the benefit payable under the policy. If this is the case, you may be better off going for accident and sickness MPPI cover only. State benefits don’t usually affect this unless they take you over the maximum claim limits, but this is worth checking before taking out a policy.
A mortgage life insurance policy pays out to cover your mortgage payments when you die, while a mortgage payment protection insurance policy will pay out if you can’t work due to illness or injury.
Whether you need life insurance or mortgage payment protection is up to you. You can have both policies in place for your loved ones once you can no longer provide for them.
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