MORTGAGE PAYMENT PROTECTION INSURANCE

Mortgage Payment Protection Insurance | April 2024

Mortgage Payment Protection Insurance (MPPI) is a type of insurance that aims to cover your mortgage repayments if you become unable to work because of an accident, unforeseen illness, or unemployment. 

This offers a financial safety net, making sure you can cope with ongoing costs in this time without risking the loss of your home or other needs without your regular income.

In this article, you will learn:

– Why MPPI is essential to protect your home.

– How mortgage payment protection works and the types of cover on offer.

– What mortgage protection policies are, as well as their benefits, and the claiming process.

– How to use this knowledge to help you make informed decisions regarding your mortgage and financial security going forward.

– How to evaluate your need for insurance and how to get covered.

Table of Contents

Mortgage Payment Protection Insurance

Mortgage Payment Protection Insurance was created as a safeguard of monthly mortgage payments for homeowners if they’re found unable to work due to illness, injury, or redundancy. 

Ensuring that your mortgage keeps being paid during these tough times can relieve stress and provide much-needed financial stability and peace of mind. It can also avoid you dipping into savings or relying on state benefits to keep up these payments.

This type of insurance often can include a period of waiting before the payment actually starts. This is known as the deferred period and can vary between providers.

It’s important to check carefully what terms apply with your particular circumstances and scheme, impacting when you see the payments.

A typical MPPI policy offers to pay a set amount each month, usually linked to the amount you regularly pay for your mortgage. This is paid for a defined amount of time, often 12 or 24 months, or until you go back to work, whichever is sooner.

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Types of Mortgage Payment Protection Insurance

Different types of mortgage protection insurance, include policies covering only unemployment, only sickness, or both. Some policies also offer cover for critical illness cover on top of this. 

Make sure to understand what your policy covers specifically and any exclusions that may restrict your payments, such as if you have pre-existing medical conditions. When considering mortgage protection, it’s also a good idea to compare it with other types of protection insurance

For example, life insurance policies provide a larger lump sum when someone passes, while critical illness cover send payments when the claimant is diagnosed with a serious illness.

mortgage life insurance, on the other hand,  acts to pay off your mortgage in full if you die before the mortgage is paid off completely.

Benefits of Mortgage Payment Protection

The main benefit of Mortgage Payment Protection Insurance for many is the peace of mind it brings. Knowing that your mortgage payments are covered if you’re unable to work due to illness, injury, or job loss can greatly ease any financial worries in uncertain times. 

It helps make sure all mortgage repayments are covered, which if they weren’t could lead to the risk of losing your home. Another advantage on offer is the support during recovery from illness or looking for a new job. 

Instead of worrying about mortgage payments and financial uncertainty, you can focus on your health or job search which will lead to quicker recovery or job success. 

Certain policies may also cover other costs, such as council tax or utility bills, which can provide even more comprehensive feelings of security. For those that are self-employed, mortgage payment protection can be particularly valuable, as traditional sick pay may not be available. 

This makes a policy securing payments if you’re unable to work can be a critical component of financial planning for the future. This type of cover is specified to suit the unique needs, finances, and working situation of self-employed individuals.

How to Claim on Your Mortgage Insurance

How to Claim on Your Mortgage Insurance

To claim your mortgage payment protection policy, you have to notify your insurance provider as soon as you can after you become unable to work. You’ll need to provide convincing evidence of your situation, such as a doctor’s note for illness or proof of redundancy. 

Then, the provider will guide you through the claims process and sort your payments. Each provider has their own differing terms regarding the claims process, including the amount of time you have to wait before you can make a claim.

So, it’s essential to understand the specifics of your policy before deciding to get insurance with them. Some policies may also have exclusion periods for pre-existing conditions or specific illnesses, affecting your ability to claim any payments, so ensure you check whether your situation is eligible.

Once your claim is approved, you will start to receive payments after a certain waiting period, which will usually keep coming for the duration of the policy term or until you can return to work.

Most policies have a maximum payout period, after which the policy ends, and payments stop, differing between providers.

"The main benefit of Mortgage Payment Protection Insurance for many is the peace of mind it brings."

Advantages and Disadvantages of Mortgage Payment Protection Insurance

The below section outlines some of the main advantages and disadvantages associated with taking out a mortgage protection policy, helping you make an informed decision on whether it’s a good idea for you.

Advantages of Mortgage Payment Protection Insurance

1) Financial Security

– This insurance provides a safety net for meeting mortgage payments during unexpected unemployment or illness, which can be a financial relief during stressful periods of uncertain income.

– This also helps to maintain your credit score, preventing the risk of defaulting on your mortgage, leading to serious financial consequences such as losing your house.

2) Peace of Mind

– Knowing that your mortgage repayments are covered offers peace of mind and feelings of safety, allowing you to focus on recovery from illness or finding a new job without worry in these difficult times.

– This reduces the mental burden of how to cope financially if your regular income comes to be disrupted due to health problems, job loss or other unforeseen circumstances.

Support for the Self-Employed

3) Support for the Self-Employed

– Self-employed individuals often don’t include any sick pay benefits that employees may receive, so Mortgage Payment Protection Insurance is particularly advantageous for them to provide this.

– It offers a level of income security not typically offered by self-employment, covering monthly payments during periods without work.

4) Coverage for a Range of Circumstances

– Mortgage protection policies can cover various situations, from accident, sickness, or unemployment cover, ensuring protection in many eventualities.

– Some policies offer critical illness cover as an optional extra, given as a lump sum if suddenly diagnosed with a serious illness.

5) Flexibility in Cover

– Income protection policies can allow you to choose the cover level and waiting period suited to your financial circumstances and needs. – This flexibility means you can align any cost of premiums with your budget, choosing the frequency of pay outs after a claim.

 6) Continuation of Lifestyle

– The policy pays out a set amount helping to cover not just the mortgage but also other additional expenses, letting you to maintain your lifestyle without financial worry during tough times.

– This also prevents any need to dip into savings or sell assets to make ends meet.

7) Additional Benefits

– Some mortgage protection insurance policies also include extra features, including back to work support, helping you to find new employment after losing your job.

– Others may offer discounts on premiums for maintaining a healthy lifestyle or not claiming over a set period, reducing the overall cost of insurance if you’re eligible.

Disadvantages of Mortgage Payment Protection Insurance

Disadvantages of Mortgage Payment Protection Insurance

1) Pre-Existing Conditions

– Many policies do not cover pre-existing medical conditions, a significant disadvantage if you have ongoing health issues that might cause you to remove yourself from employment should your situation become worse.

– This also means that you may pay premiums without being able to claim for certain conditions, which can make the policy seem less useful.

2) Limited Payment Duration

– Mortgage payment protection policies typically have a maximum payout period, usually 12 or 24 months, after which the benefits stop coming, even if you’re still not working.

– This time limit can leave the unemployed without cover despite them still needing financial assistance, particularly if they have a  long-term illness.

3) Exclusions and Restrictions

– There can be numerous exclusions within a policy where payments aren’t given, such as not covering certain illnesses, injuries, or types of unemployment, limiting its effectiveness.

– The exclusion period can affect when you can make a claim, contributing to gaps in cover that may coincide with your time of need.

4) Cost of Premiums

– The cost of premiums can be high, particularly as an older person or someone struggling with a chronic condition, which can increase insurance costs.

– Higher premiums for people with pre-existing conditions or at greater risk of claiming can occasionally outweigh the financial benefits of the policy, depending on your belief in its need.

5) Impact on Other Benefits

– Receiving payments from an income protection policy can impact your eligibility for certain state benefits, leaving you worse off overall if you can’t access these extra payments.

– You may need to weigh up the value of the policy against the potential loss of any state support, especially so if you’re already receiving or could qualify for such benefits.

6) Coverage May Not Be Comprehensive

– Mortgage Payment Protection Insurance only covers mortgage payments and, in some cases, related expenses, but this may not be enough for a lot of people to cover all financial needs when unemployed.

– If you have significant outgoings beyond your mortgage, you might need to consider additional insurance products to make sure you’ve got enough coverage.

7) Complexity of Products

– There’s a range and complexity of mortgage protection products, which can make it difficult to choose the right policy, potentially leading to inadequate cover.

– It’s important to read and understand all the terms and conditions of a policy, as well as compare it to different ones on offer, which can take a lot of time and require good knowledge of insurance products.

Eligibility Criteria for Mortgage Protection

Eligibility Criteria for Mortgage Protection

Eligibility for MPPI can be affected by your employment status, including if you’re self-employed. Self-employed individuals must provide proof of their income and business viability to qualify for payments, which can often be more complex than for those in regular employment.

Eligibility is also often determined by assessing pre-existing medical conditions. If you have any pre-existing conditions, you must disclose them during the application process to avoid issues with future claims, but this may affect your insurance cost as well as your eligibility for the service.

Impact of Health on Policy Costs

The cost of a Mortgage Payment Protection Insurance policy can be significantly impacted by how your health is. Those with a history of ill health or pre-existing medical conditions may face higher premiums because there is an increased risk to insurers.

If a serious injury or long-term illness occurs, a policy for payments being in place could be financially beneficial. However, there are initial costs and potential exclusions for pre-existing conditions here, which should be carefully considered when choosing a policy.

Sickness Cover and Mental Health

Sickness cover within a Mortgage Payment Protection Insurance policy can typically include both physical and mental health problems.

This importantly recognises that struggles with mental health can be just as debilitating as physical illnesses, preventing individuals from working.

However, check the policy details as some insurers may have different levels that they cover for mental health-related claims. Understanding the extent of physical and mental sickness cover included in the policy can make sure that you are adequately protected.

Accident and Sickness Insurance Options

Accident and Sickness Insurance is a  main component of Mortgage Payment Protection Insurance, covering mortgage payments if you are unable to work due to an accident or illness.

Comparing these different providers can reveal the variations between providers in their coverage and cost on offer, especially in cases of specific needs related to long-term illness or serious injury. 

It’s a good idea to have a policy offering the right level of protection for your individual circumstances and to understand any exclusions that might apply.

Accident and Sickness Insurance Options

A Case Study on Mortgage Payment Protection Insurance

This real world example may help individuals understand how this type of insurance could function in practice, and why it might be relevant to considering whether to secure their mortgage repayments. 

John, a 40-year-old self-employed carpenter, has a mortgage on his family home. Recently, he was diagnosed with a long-term illness that may prevent him from working for a certain period of time. 

Fortunately, John had taken out a mortgage payment protection insurance policy covering pre-existing conditions, after carefully checking he understood the terms and conditions.

His policy has a waiting period, but after it passes, it will pay for his monthly mortgage payments, allowing him to focus on recovery from his illness without any financial worry despite the unemployment and lack of sick pay benefits. 

While John’s life insurance policy will provide for his family if he passes away, his mortgage payment protection insurance offers the necessary support during his life and as his long-term illness persists.

It’s a financial safety net allowing John to manage his health issues without the added financial pressure of meeting mortgage obligations.

Key Takeaways and Learnings

The following points highlight the key aspects that should be considered when thinking about MPPI.

– Mortgage Payment Protection Insurance offers financial stability by covering monthly mortgage payments in the case of illness, injury, or job loss.

– Always check policy details for waiting periods, coverage limitations, and how they may handle pre-existing conditions.

– The cost of premiums can vary, with higher premiums including those with health issues or a medical history of long-term illness.

– Self-employed individuals can particularly benefit from the protection offered, without their access to employer sick pay.

– A policy sometimes also covers additional living expenses, offering broader financial safety beyond just mortgage repayments.

– Always compare different policies and providers to make sure you’re getting the coverage best fitting your needs and circumstances.

– Be proactive when trying to understand the terms of your policy to avoid complications or surprises when making a claim.

In conclusion, Mortgage Payment Protection Insurance is important to consider for homeowners who may want to safeguard their ability to maintain mortgage payments during stressful and uncertain times. 

Careful evaluation of insurance policies, attention to detail regarding terms and conditions, and a good understanding of one’s personal needs can help make sure you’re choosing the right cover for you. 

If successful in this, homeowners can achieve a sense of security, knowing that their most significant financial commitment is protected against any unforeseen circumstances in their employment. 

It is recommended that individuals review their insurance needs regularly and consult with professionals to ensure protection of their insurance cover stays adequate to their needs over time.

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Meet the author

William Jackson

William is a leading writer for our site, specialising in both finance and health sectors.

With a keen analytical mind and an ability to break down complex topics, William delivers content that is both deeply informative and accessible. His dual expertise in finance and health allows him to provide a holistic perspective on topics, bridging the gap between numbers and wellbeing. As a trusted voice on the UK Care Guide site, William’s articles not only educate but inspire readers to make informed decisions in both their financial and health journeys. 

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