Mortgage Protection, more commonly known as Mortgage Payment Protection Insurance (MPPI), is designed to protect your home in the event you are unable to meet your monthly mortgage payments.
Why is it important?
Failing to meet you mortgage payments each month following an accident, sickness or unemployment could put your property at risk, which is why MPPI is definitely worth considering.
While some people who run into trouble with their mortgage payments find help through the government, not everyone qualifies for state support.
Even if you are eligible for this type of support, it will usually only cover the interest costs on your mortgage - not the loan repayment costs. An MPPI policy can cover both of these.
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Is it suitable for me?
MPPI is recommended for people who would not be able to cover their mortgage payments and related costs with their savings for a year – the maximum length of time most MPPI policies pay out for - if they were unable to work due to accident, sickness or unemployment.
You can take out cover to protect your mortgage in the event of accident and sickness, unemployment, or both.
To help decide which type of cover to go for, you should check to see how much you are likely to receive from your employer in the event of redundancy. If you were to receive a sufficient payout to cover your mortgage payments, you may be better off leaving out unemployment protection and going for accident and sickness MPPI cover only.
Alternatively, if you find that you are entitled to a generous amount of sick pay from your employer in the event that you fall ill and are unable to work, then it might be worth taking out unemployment cover only.
Free mortgage protection calculator
See how much mortgage protection cover you can get with our free mortgage protection calculator.
How do MPPI policies work?
Mortgage protection policies come with an excess period, which is the amount of days you need to wait before you are eligible to make a claim.
This is usually followed by a similar waiting period before the first payment can be made. For example, a 30 day excess period means you have to be off work for 30 days before you can claim, and a further 30 days before you receive your first tax-free payment, if your insurance claim is accepted.
Most MPPI providers offer 30, 60 and 90-day excess periods. However, many also offer zero excess or ‘Back to day one’, meaning although you have to wait 30 days before you are eligible, the benefit you receive will be backdated to the date you were first unable to work.
Payouts usually only last for up to 12 months and each tax-free payment is capped, typically at £2,000 a month or 50% of your gross monthly income - whichever is less.
This is important to remember when considering MPPI as the benefit you receive may not be enough to cover your mortgage.
Things to remember
- Before agreeing to an MPPI policy, check that you don't have a similar type of insurance already in place such as income protection cover. Unlike mortgage protection, it can be used to cover mortgage payments and related costs, as well as other monthly household expenses in the event you are unable to work due to illness, injury or unemployment.
- Make sure the level of mortgage cover you take out does not exceed your mortgage commitments, as the over-insured sum will not be paid out when you make a claim.
- Bear in mind that most MPPI plans do not allow you to claim for unemployment within the first three to six months of the policy start date.
