Mortgage Payment Protection Insurance – Planning ahead in the age of austerity.
Following the Government’s comprehensive review in November, spending cuts will result in the loss of half a million public sector jobs by 2014.
If you still have your job, but are worried about the future, taking out Mortgage Payment Protection Insurance could give you piece of mind. Also known as Mortgage protection insurance, this policy is designed to pay out if you are struggling to meet mortgage repayments through unemployment, often including sickness and accident cover too.
Although state benefits will help if you have been unemployed for a long time, they are limited and also means-tested. If you had savings, for example, then you would be expected to use them first. You may find yourself waiting around nine months before you would see any payout.
Mortgage Payment Protection Insurance (MPPI) is the most common insurance to cover mortgage repayments, and anyone with a mortgage should think carefully about taking one out. Many home-owners find themselves stretched financially, especially first-time buyers. Taking out mortgage payment protection insurance means you won’t have to worry should any unforeseen redundancy or unemployment occur in the future.
There are several options to consider when taking Mortgage Payment Protection Insurance. For comprehensive cover, you should take out full accident, sickness and unemployment. However an "accident and sickness only" option is available, as is "unemployment" insurance only.
Exclusions
When choosing the right mortgage payment protection insurance, consider the terms and conditions carefully - there will be "exclusions", or areas which are not covered. For example, most mortgage payment protection plans do not include pay out if you take voluntary redundancy. Similarly, it will not pay if you resign, or are dismissed for misconduct.
Also, if you are off work because of pre-existing medical conditions (whether diagnosed with a doctor or not) you will be exempt from benefit.
Mortgage Payment Protection Insurance will not pay out if you are made unemployed within the first 60 days of the policy being taken out either.
Two of the most common reasons why people may find themselves unable to work - stress and back problems - are also excluded from many policies.
How to apply
Mortgage Payment Protection Insurance is usually taken out at the same time you take out a mortgage. It is not compulsory, although most customers consider it carefully. Think about whether you take out your MPPI from your mortgage provider, or if you should shop around for independent providers. There are many comparison sites where you find the cheapest options, or the best to suit your requirements. Mortgage Payment Protection Insurance can be bought from a bank, building society, financial adviser, insurance company or even another mortgage provider.
There is a "wait period" (the length of time before you are eligible to claim) but you can usually choose this when you take the policy out; a longer excess wait period will usually mean cheaper premiums.
What will I be expected to pay per month?
The cheapest policies can come in as little as £10, although these will have a longer wait period. Remember to examine the policy carefully, as cheapest is not always best!
However, cost of Mortgage Payment Protection Insurance has increased rapidly over the last year, as many home-owners have lost their jobs, and MPPI insurers paying out record amounts to their customers.
How to claim
If you find yourself unable to repay your mortgage payments due to accident, sickness or unemployment, you should inform your provider immediately. When you receive your first payments will depend on the wait period, but most companies pay out around one month after you stop receiving your salary.
You will receive your Mortgage Payment Protection Insurance payments for around 12 or 24 months, dependent on the type of policy you have chosen. It is normally assumed that after this period, most people will have either secured new employment, or recovered from their illness or injury.
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