Mortgage protection insurance – or mortgage payment protection insurance (MPPI), as you’ll often see it described – can be an especially important yet straight forward financial product. It genuinely protects your ability to meet your mortgage repayments by providing a regular, monthly, tax free sum in the event of you becoming unable to work due to incapacity because of an accident or sickness, or following a compulsory redundancy.
While it is simple and straight forward, therefore, a few tips might be helpful about buying this insurance so that you get the cover most suitable to your needs.
The amount you choose to insure will largely be a question of personal choice or circumstances and is related to the level of income you regularly earn. So, you can typically insure an amount up to 50% of your gross earned income or the provider’s set limits (usually around £1,500 a month), whichever is the lesser amount.
This means that for the average homeowner, the mortgage protection insurance payment can comfortably meet your monthly mortgage repayments, leaving you without financial worry at an already stressful time.
As a first step, it is probably a good idea to list your monthly mortgage-related outgoings, such as the mortgage payment itself, any life and / or critical illness insurance, home insurance and utilities costs etc. This will highlight how much you need to consider taking out to ensure that your mortgage commitments are comfortably met in the event that you were incapacitated from working or if you lost your job through no fault of your own.
It is then a question of purchasing the corresponding mortgage insurance plan, which is generally quoted in terms of each £100-worth of income covered. In this way, the relevant monthly premium can be readily calculated. By going with an independent provider of the mortgage protection insurance, you can often get a deal from as little as a few pounds a month for every £100-worth of protection needed.
Making a claim
The acid test of most insurance policies is what happens in the event of a claim, so it is important to consider some of the policy details – which will vary from insurer to insurer – affecting the processing of claims under your chosen mortgage protection insurance plan.
All policies will describe the minimum period for which you will need to be unable to work because of an accident, sickness or unemployment. This is generally termed the “qualifying period” and – depending on the insurer – can be between 30 or 90 days. Claims will then be entertained by the insurer once the qualifying period has been exceeded.
A further difference between insurers is the way in which the qualifying period itself is treated. With some policies the insured benefits become payable from the day after completion of the qualifying period but are backdated to the first day on which the policy holder was incapacitated or unemployed. With other policies, however, the qualifying period itself is regarded as an effective policy excess, during which time you will be obliged to bear any loss of earnings. In other words, the benefits are not backdated to day one, but are paid only for that period after the expiry of the qualifying period and until you return to work or find a new job.
By doing your research and looking for a mortgage protection insurance policy that not only suits your budget, but offers the type of cover you need, you can ensure that you are adequately protected should disaster strike and you lose your income.