What Is Mortgage Payment Protection Insurance (MPPI)?
Mortgage Payment Protection Insurance (MPPI) or accident, sickness and unemployment insurance (ASU), covers your monthly mortgage payments should your income stop due to accident, sickness or redundancy. The benefit is then normally paid for 12 months, although some policies pay it for up to 24 months. In terms of alternatives, there is no government help for the first nine months of unemployment or disability for mortgages taken since October 1995 and benefits for people in this situation are means tested, so if you have any savings, pensions or investments, you’d be expected to use them first.
MPPI is not essential however, and a lot of mortgage lenders don’t even insist upon you taking it. If you were going to take it, shop around and get a few quotes as you certainly don’t have to buy it from your current mortgage lender. The costs are linked to how large your mortgage is. For every £100 it is around £3-£7, and you can pay as much as £50-£60 per month.
Is the cover instant?
Unfortunately it is not, and this is definately something that should be checked with your provider. Usually you will have to wait at least 30 days after you have taken out the policy. Moreover, if you lose your job or become ill during this time, most providers will not pay anything. After submitting your claim, you usually have another delay of 30-6- days before repayments will be made on your behalf by the policy. Unfortunately, MPPI has lots of restrictions. In fact, according to recent OFT research, only one in five claims is successful. ‘You won’t be covered if you knew you were going to be made redundant when you took out the policy or if your firm has experienced recent job losses. It won’t pay if you were sacked for negligence or misconduct, or if you’ve taken voluntary redundancy,’ says Theresa Fritz, principal researcher at consumer group Which?
‘Also it won’t pay for claims relating to existing medical conditions, stress-related conditions, back ache, the HIV-virus or AIDS-related illnesses, pregnancy or childbirth, alcohol or drug abuse,’ she adds. Furthermore, ‘the way it’s been sold,’ Salespeople have pressed MPPI on stressed out borrowers finalising a mortgage – earning themselves big commission along the way. Borrowers have bought policies in a hurry not understanding how it worked but believing their mortgage payments would be covered for them in any event.’
It’s primarily because of this that MPPI is currently under investigation by the Office of Fair Trading.
Top Tips
• A good alternative is income protection insurance which offers cover for all expenses should your income be affected by accident, sickness or redundancy.
• Check the terms on which your employer pays sick pay if you suffer a long-term illness or disabling accident. Defer an income protection policy to pay out after this period.
• Create an advance position of saving up at least three months’ mortgage payments or by paying off three months in advance.
• Keep money in a flexible savings plan so you can get at the money if you need it.
• Don’t leave yourself unprotected – it’s worth seeing an independent financial adviser who can look over your entire protection and financial planning needs.
• Finally MPPI is better than no income protection at all advise Which?