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Is it possible to insure against my mortgage repayments?
When many people take out a home loan they don't consider a mortgage payment protection insurance (MPPI) policy. The government has stopped providing financial assistance for those with a mortgage who become unemployed. This means that they won't provide benefit for the first nine months. They also then set up minimum standards for policies to ensure that customers got a fair deal.
The reason most people don't think about MPPI is because they assume their savings or state benefits would cover the repayments should they not be able to work.
However most borrowers will find that their savings are insufficient, and will not cover them for an extended period. A man with two children will get a maximum of £6883 a year of state benefits if out of work - an amount that would make paying the mortgage and having money left over for other essentials, extremely difficult.
MPPI, whilst not compulsory, is a condition of many loans. MPPI cover should always be considered by anyone taking out a mortgage today. Many people financially over extend themselves, taking out mortgages that they can only just afford whilst in their current employment. (In recent times this has been encouraged by mortgage lenders - more for their benefit than yours.) In periods of illness or unemployment these financial commitments simply cannot be sustained leaving you with the risk of repossession.
State benefits are means tested, so you are expected to use your savings up before they will be paid. This is where an insurance policy that covers mortgage related bills can be essential, because all the hard work of saving can be used up in a very short period illness or unemployment without income protection. Good MPPI policies will kick in after one month after you're out of work, through redundancy or illness. The policies will pay out for a period of around 12 months. By the end of this period you are expected to have found new employment or to have recovered from your illness.
Should you have a long term illness, MPPI would not be sufficient. For long term illness cover you would need Income Protection rather than MPPI. MPPI is a short-term product, and because it is short term the premiums are usually considerably cheaper than a similar long-term illness policy.
Once you become unemployed you must inform your insurance provider, they will then authenticate that you are truly unemployed, and after a month your payments will begin. Typically, payments are made directly to your mortgage lender, rather than to you, the customer. This prevents the client from using the cash for other things.
UK Mortgage Payment Protection
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