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Mortgage Payment Protection Insurance The Do's And Don'ts
By: Michael Challiner
When you've taken out a mortgage you've make a long-term commitment to maintain
the monthly repayments for the full duration of the mortgage. That's going to be
over many years but you're making that commitment without the benefit of a
crystal ball – no one knows how your circumstances are going to change, for good
or bad. So that must represent a big risk. Mortgage Payment Protection Insurance
(MPPI) is one of a range of insurances that includes life insurance and critical
illness insurance, which you can reduce that risk and protect your family's
finances.
The purpose of MPPI is to ensure that your mortgage repayments will continue to
be paid if you're off work for an extended period due to accident, sickness or
unemployment. Just consider the risks that this type of insurance is designed to
alleviate:
Home repossessions run at about 90 per day. Most of these are due to financial
problems associated with unemployment.
One third of all people aged between 25 and 34 have experienced unemployment for
more than a month.
During the term of their mortgage most people experience at least one period of
illness, or the repercussions of an accident, which will keep them off work for
more than 3 months.
If you have a standard repayment mortgage, you're well advised to set the value
of monthly MPPI cover to equal the value of your monthly repayment plus your
life insurance and home & contents insurance premiums. However, if you have an
interest only mortgage, then your cover also needs to include the monthly cost
of the investment plan you're using to repay the mortgage at the end of its
term. Also remember that if your mortgage repayments subsequently change due to
interest rate movement, then you need to contact your insurer and get the policy
similarly modified. Oh yes, the nice bit – if you claim then the income payout
is totally tax-free!
11 Top Tips for buying
Mortgage Payment Protection Insurance
Don't think that you can only take out MPPI when you arrange the mortgage. You
can take out MPPI at any time.
Be aware that some mortgage lenders will try to pressurise you into taking out
MPPI along with your mortgage. If this happens, make sure you find out how much
extra the cover will cost each month and then get on the Internet and get a few
competitive quotes. Most people will find savings of up to 60%!
Mortgage lenders will only quote you for the cover needed to meet your monthly
mortgage repayments. Remember our advice to include cover for the cost of your
mortgage life insurance, your home & contents insurance and the cost of any
investment plan you have allocated to repay your mortgage (the latter item
applies only to interest only mortgages).
If your employment is seasonal or casual you won't be able to claim on an MPPI
policy. Every policy has what are called exclusions and seasonal and casual work
is just a typical one. Exclusions are the circumstances under which you cannot
make a claim. Always read these exclusions before you take out the policy and if
you can see that your circumstances mean that you're unlikely to be able to make
a valid claim, don't buy the policy. In some cases, the policy exclusions will
eliminate 50% of potential claims.
Don't automatically opt for the cheapest MPPI policy. The conditions under which
policies pay out do vary so check them out carefully. Premiums are always a
reflection of the extent of the exclusions in the policy, the level of cover
provided and the insurers general marketing strategy.
Don't get confused by the different names given to MPPI. It can also be
described as Accident Sickness and Unemployment Insurance, Payment Cover and
Payment Care. Basically, they all do the same – but remember to check out the
exclusions!
Most policies state that you have to be off work for a minimum period of time
before you can make a claim. The maximum period you'll find is 60 days but many
policies reduce this to 30 days - and some will then backdate the payment to the
first day you were off work. You'll find full details about these aspects in the
policy's Terms and Conditions. Always check these out before you buy and
remember when you're comparing prices, to compare like with like.
Don't confuse MPPI with Mortgage Indemnity Insurance (MIG). Mortgage Indemnity
Insurance p rovides cover for a mortgage lender for any losses the lender might
suffer as a result of a property on which they provided a loan being sold for
less than the amount of the loan. Any payout under a MIG policy goes to the
lender, not you!
If you already have Permanent Health Insurance your may not need MPPI. Check out
the terms of you PHI policy.
Be aware that there is a level of duplication between Critical Illness Insurance
and MPPI. MPPI will pay you an income during the insured period for any illness
that prevents you from working. Critical illness Insurance will payout a lump
sum if you are diagnosed with any of the chronic illnesses listed on the
critical illness policy. So if you have a critical illness claim, then you will
almost certainly also have a claim on your MPPI policy. However, if the illness
that's keeping you off work is not listed on the chronic list, and all ordinary
illness aren't, then only your MPPI policy will payout.
Shop around. As with most types of insurance, the Internet is the cheapest place
to shop and many sites will enable you to arrange cover immediately online. Try
searching under mortgage payment protection insurance rather than just mortgage
protection. That search term is totally specific and you're bound to find what
you want.
About the Author:
Michael writes for Express
Life Insurance who provide life insurance quotes to Uk residents. Click here for more life insurance articles
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