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What would happen if suddenly you lost your job or were unable to work because you fell ill, had an accident, or became a carer? How would you continue to pay your mortgage?
Mortgage Payment Protection Insurance will pay your monthly mortgage if you are unable to work due to accident, sickness or unemployment, including if you have to leave work to become a carer.
"Your home is at risk if you do not keep up the repayments on a mortgage or other loan secured on it."
You may have seen this on a mortgage advert, have you ever stopped to think about what it means?
If you fall behind with your mortgage payments and don't catch up again, you would eventually lose your home. You can take steps to protect yourself against this by taking out Mortgage Payment Protection Insurance or MPPI as it is known.
Mortgage Payment Protection Insurance (MPPI) pay your monthly mortgage payments for a up to 24 months if you suffer accident, sickness, or unemployment.
You pay a premium each month. If you become unemployed, or unable to work due to accident or sickness, the policy will pay out after the deferred period
To protect the insurer against adverse selection there are some periods where you will not be covered .The main one is the initial unemployment exclusion period these can be up to 120 days and obviously the shorter the better. If you take your MPPI policy out with your mortgage this can reduce the unemployment exclusion period to zero.
If a claim occurs during thIS period it WILL NOT BE PAID of up to 60 days. In addition, there is an "excess" or "waiting" period of up to 90 days for each claim, during which no payments will be made. We would therefore advise that you choose a policy with a 30 day waiting period and ensure you have sufficient savings to cover this period.
MPPI does not cover all circumstances - for example, unemployment caused by misconduct, or that you knew was impending at the time you took out the insurance, or sickness claims caused by certain pre-existing medical conditions.
The MPPI can be set up so that it covers both of you, usually by allocating a proportion of the MPPI to each person (eg 50/50 or 60/40). If one person needs to claim, then the amount of the benefit payment will be the proportion of the MPPI allocated to that person. It is also possible to allocate the MPPI on a 100/100 basis, so that 100% of the MPPI is paid, even if only one of the joint borrowers loses their income. This type of arrangement will generally require higher premiums.
You will generally be able to take out MPPI even if you are self-employed or on a contract. However this will not cover seasonal unemployment and cancelled or completed contracts.
If you are taking out a new mortgage, you will probably be offered MPPI by your lender or mortgage adviser arranging your mortgage. Unless the MPPI is part of a mortgage "package", we would advise you approach an Independent Mortgage Protection broker like ourselves. One piece of advice if you want to avoid the initial unemployment exclusion period take it out at the same time as your mortgage.
We recommend that you cover the full amount of your mortgage plus any other associated regular outgoings. If a large proportion of your salary is taken up by regular commitments we also recommend that you consider an income replacement plan.