Mortgage payment protection insurance or MPPI policies are often sold with mortgages. The idea is to provide you with cover if you you find yourself unable to make your mortgage payments for reasons beyond your control – such as redundancy, illness or accident.
Although you can get your mortgage payment protection insurance from your mortgage lender, this doesn’t mean that you have to. More and more MPPI policies are becoming available on a stand-alone basis and many people find this is a better option. Apart from anything else, stand-alone policies often cost less and provide better value for money.
So how do you actually work out the cost?
The cost of a mortgage payment protection insurance policy is expressed as so much per £100 of your monthly mortgage repayments. If a policy costs £5 per £100, this means that if your monthly payment is £400 per month, your insurance premium is £20 per month. If your mortgage payment is £1000 per month, your insurance payment is £50 per month. Many policies sold with a mortgage will cost a lot more than this – a quite possible range is £10-£30 per £100.
Unfortunately, some mortgage lenders still regard mortgage payment protection insurance as their main source of making a profit, especially now that interest rates are getting lower. So if you are fortunate enough to obtain a mortgage, do make sure that you know what you’re buying. Some mortgage lenders will use a low interest rate to reel you in, and load all the costs on to the insurance. In order to guard against this, you should request the mortgage quote with and without the insurance payment. This will make it quite clear how much difference the insurance will make to your monthly payment. If you don’t make this specific request, they could try to slip it past you. Always remember that you are not obliged to have the insurance at all, but if you feel it would benefit you, you are not obliged to buy it from your mortgage lender.
If you decide to shop around for a stand-alone mortgage payment protection insurance policy, where you find the cheapest will depend to some extent on your age. Some policies are age related – that is, the younger you are, the less you pay. Others are non-age related, charging a flat rate regardless of age. Generally speaking, if you are under 50 when you take out the insurance you are better with an age-related policy. Over 50s do better with one that is non-age related.
Another way to obtain better value for money is to find a policy that allows you to pick and choose what you are covered for. For instance if you are self-employed there is no point in being covered for redundancy, so paying for this element of the policy is a waste of money. Ask your broker to help you find a policy where you only need to cover for the elements that are relevant to you. Also if you can afford it – for instance if you have some savings put by – go for a policy with a longer waiting period before it begins to pay out – 90 days instead of 30 or 60 days, for example. This means your premiums will be cheaper.
Mortgage payment protection insurance can benefit you and give you peace of mind, so long as the policy is right for you. But paying more than you have to can cancel out the benefit. Do shop around or consult a broker to find the policy that gives you the best value.