For many of us, our mortgage is our biggest monthly expense. Therefore, the question of whether we could still afford to meet our mortgage repayments if we were out of work is an important one… and this is where mortgage payment protection insurance comes into play.
What is Mortgage Payment Protection Insurance (MPPI)?
MPPI covers your monthly mortgage payments if you’re made redundant or are unable to work due to serious illness or injury. There are three main types of policy cover:
- Unemployment
- Accident and sickness
- Combined
MPPI can help prevent you from defaulting on your mortgage and risking repossession of your home if you’re left without your ordinary income to make mortgage payments.
How it Works
You begin receiving payments after you’ve been out of work for a specified waiting period, which is usually set between 30 and 60 days but can reach up to 180 days. Therefore, it is still always important to consider having an emergency fund, as you still need to cover costs during the waiting period.
There is usually an exclusion period, which is the time elapsing between the start of your policy and the time you are actually eligible to make a claim on the insurance. This exclusion period is usually set between 30 and 180 days.
You will then receive set monthly payments, usually for up to a maximum of 2 years.
Depending on your MPPI provider, you may be able to get a policy where your bills are also covered, in which case you will receive 125% of your mortgage costs.
Your job may affect the amount you have to pay for your MPPI policy, because most insurers categorise jobs according to different risk categories. The higher risk of injury, illness or redundancy you are seen to be at, the higher your premium will be.
Other Insurances to Consider
You may wish to consider a decreasing life insurance policy, which covers the cost of your mortgage payments for your dependents when you die. This is by no means an alternative to MPPI, as cover only starts in the event of your death. However, it may be something you want to consider in addition to MPPI, so that you dependents are financially protected.
As an alternative to MPPI, you may choose to take out income protection insurance. This covers a portion of your salary, making it more comprehensive than MPPI, as the payments you receive can be used for anything, including the mortgage payments themselves. Additionally, income protection insurance often pays you instalments for longer than the MPPI 2-year limit.
Critical illness cover is an alternative worth considering if you were thinking of taking out an accident and sickness MPPI. Critical illness cover pays you a lump sum if you are diagnosed with a serious illness which makes you unable to work, but it does not provide you with a regular income through instalments.
Check whether your employment contract includes an arrangement for the company to continue to pay you your salary, or a portion of it, for a set period if you are off work due to illness. Some employers may even offer income protection insurance as an employee benefit.