mortgage payment
protection insurance
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mortgage payment
protection answers
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Mortgage Payment Protection Insurance (MPPI) will pay your monthly mortgage loan repayment commitments for you if you were to be off work due to disability (accident and sickness) or unemployment.
You are also able to add an extra 25% on top of your mortgage loan repayments for mortgage related costs such as home insurance, utility bills, council tax etc.
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What is mortgage payment protection insurance?
Subject to your chosen excess period, mortgage payment protection insurance will pay your monthly mortgage loan repayments and associated costs for a maximum period of either 12 months or 24 months if you were to be off work (and therefore not able to earn an income) due to accident, sickness (disability) or unemployment (redundancy).
The shortest excess period after disability or redundancy before the policy will start to payout is at least 30 days. It is possible to take out cover for either 12 months or 24 months and the maximum monthly benefit available is £2,500 or approximately 65% of your gross monthly earnings.
Accident and Sickness definition: An accident or sickness certified by a doctor in the UK which prevents you from doing your normal work or any similar work for which you are reasonably qualified and you are not doing any other job for payment or reward.
Unemployment definition: A period during which you must be no longer employed or self-employed and be:
- Receiving the appropriate class of National Insurance contribution credits;
- Available for and actively looking for work in the UK;
- Registered as unemployed with the appropriate government agency;
- Entirely without work; and
not receiving wages.
If you are self-employed, in addition to the above you must also have ceased to trade. If you are a company director, your company must have been wound up by a creditor who is not a director of that company.
Do I need mortgage protection cover?
Naturally you will have seen or your mortgage provider will have pointed out that "Your home may be repossessed if you do not keep up repayments on your mortgage."
Mortgage payment insurance is a solid way to protect your home in the short term if you do not have sufficient savings to make your mortgage loan payments should you become too ill to work or are made unemployed through no fault of your own.
Of course, there are also many people who take out MPPI because they do not want to risk depleting their savings on their home loan repayments should they suffer accident, sickness or unemployment rendering them unable to earn an income.
If your employer provides you with income protection or critical illness insurance then you may decide that you do not need the full level of mortgage payment protection insurance. As neither income protection nor critical illness policies provide you with unemployment cover it may be advisable to take out an unemployment only policy.
How much cover do I need?
How much you wish to cover is completely up to you, subject to that figure being the lesser of 125% of your monthly mortgage repayments, 65% of your pre-tax (gross) earnings or £2,500.
It is quite common to set the monthly mortgage payment protection benefit equal to your monthly loan repayment, plus any associated mortgage / home costs you wish to add, such as home insurance, utility bills, council tax etc (you are entitled to add 25% extra for associated costs).
If you have substantial savings you could use your mortgage protection insurance to supplement what you can afford to pay out of your own savings each month, the monthly mortgage payment insurance cover you select can be lower than your actual loan repayments and associated costs.
Length of cover
MPPI is a short term payment protection policy. You can either select a policy that lasts for 12 months (and renew the plan each year) or select a policy that last for 24 months (and renew every two years).
If you decide to take out a 12 month plan, please be aware that if you are claiming benefit at the end of your policy term the monthly benefit will cease to be paid by the insurer and you would be subject to an exclusion period (which can range from 1 month to 6 months) if you wished to continue the policy. As a result, the 24 month policy provides an increased level of cover but does command a higher premium.
If you are looking for long term incapacity (accident and sickness) cover you should consider taking out an Income Protection plan. If you were to become serious ill and have to cease work indefinitely an income protection policy can pay you a monthly benefit all the way up to retirement, if so wished.
Please note that income protection is for accident and sickness only, it does not cover unemployment.
Choosing your excess period
Mortgage payment protection insurance policies require you to select an excess period (also known as a deferred period or waiting period).
An excess period is the period of time from which you go off work (due to accident, sickness or unemployment) until the day you are eligible to start claiming benefit.
The minimum excess period that can be selected is 30 days and the maximum is 180 days. You are also able to select whether to want the benefit accumulation to start from day one (called 'back to day one' mortgage payment insurance).
Example 1 - 30 day excess, paid back to day one: The MPPI policy would start to pay your monthly benefit from day 31 (day 1 being the day you became ill or were made redundant). The benefit that was paid covered the period from day 1 to day 30.
Example 2 - 60 day excess, paid back to day one: The mortgage insurance policy would start to pay your monthly benefit from day 61 but would pay two months worth of benefit. The benefit paid covers the period from day 1 to day 60.
Example 3 - 60 day excess, paid from day 60: You would not start accumulating benefit until day 61 and no benefit would be paid until day 91. The benefit paid on day 91 would cover the period from day 61 to day 90.
Unemployment cover only
Yes, it is possible just to have unemployment cover only for your mortgage payments. Mortgage payment protection insurance is otherwise known as accident, sickness and unemployment insurance.
This is not only because it describes what the policy covers but also because the policy can be separated into two separate policies, one accident & sickness policy and a separate unemployment plan. If you require unemployment (redundancy) cover only just select Unemployment in the type of policy in the quote form below.
Naturally, if you choose unemployment cover only the premiums will be cheaper but you will not be covered for incapacity.
Self employed mortgage payment protection insurance
Yes, if you are self-employed you are entitled to take out mortgage payment insurance. As with those who are employed, you would need to be continuously employed or self-employed for the previous 6 months.
However please be aware to make a claim for unemployment you must have ceased to trade. If you are a company director, your company must have been wound up by a creditor who is not a director of that company. The accident and sickness terms of the policy would the same as with an employed individual.
Self-employed definition: You are in a profession or business alone or with others and paying class-2 National Insurance contributions, or you are a company director.
Accident & sickness exclusions?
In the event of a claim the insurer will not usually pay out a monthly benefit to cover your mortgage repayments if your disability:
- results from you deliberately injuring yourself;
- is caused by alcohol, solvent abuse or drugs (other than drugs taken under the direction of a doctor or consultant and not to treat drug addiction);
- arises from stress, anxiety or depression, or any mental or nervous disorder, unless investigated and diagnosed by a consultant, specialising in the relevant field;
- results from a pre-existing condition;
- results from a chronic condition that you knew about or should reasonably have known about at the start date, whether it needed medical attention at that time or not;
- is caused by normal pregnancy and childbirth-related conditions (when you make a claim for a pregnancy or childbirth-related condition, we may refer to a doctor who specialises in obstetrics for an opinion as to whether the condition is a normal pregnancy and childbirth-related condition - this opinion will be final);
- is due to a back complaint or related condition, unless supported by specialist medical evidence;
- arises from medical operations or treatments which are not medically necessary to maintain your quality of life and which are carried out at your request;
- results from attempted suicide or wilful exposure to danger (except in an attempt to save human life); or is not supported by medical evidence from a doctor
Unemployment general exclusions
In the event of a claim the insurer will not usually pay out a monthly benefit on your mortgage payment protection insurance for unemployment if:
- You are notified about the risk of unemployment within the initial exclusion period, even though your unemployment may not take place until after this period.
- It follows a period of casual, temporary or occasional work.
- Your work is seasonal and unemployment is a normal part of it, or unemployment is a regular feature of your work.
- You are unemployed during a period in which you have received payment instead of working your notice.
- It arises as a result of you coming to the end of a fixed-term contract or a contract for your services, unless it is a regular-fixed term contract.
- It is caused by your resignation, voluntary unemployment or voluntary redundancy. This exclusion will not apply if:
- your unemployment is solely and directly as a result of you becoming a carer, and you can provide evidence to us which proves
- that you were not aware at the start date that you would become a carer; or
- your voluntary redundancy is claimed under section 147 of the 1996 Employment Rights Act due to short-time working. If you make a claim, you will have to produce documentation to confirm that your redundancy is within the terms of this Act
- You are dismissed by your employer because of:
- your own misconduct;
- you breaking a condition of your contract;
- industrial action in which you are involved; or
- failing to meet the standards or targets set by your employer
- You knew about the possibility of unemployment (or in their reasonable opinion you should have known about it) at the start date.
- You are self-employed and cannot provide satisfactory evidence of having ceased to trade.
- You refuse any offer of reasonable alternative employment by your employer.
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Any information provided for this mortgage life insurance quote will be treated as strictly private and confidential under the Data Protection Act (1998)
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