Mortgage protection insurance – also knowns as an MPPI policy – is an extra safeguarding measure for homeowners that is usually advised.
If you have ever wondered what a mortgage protection policy is, how much one costs or the different types of cover, you’re in the right place. Our guide explains the ins-and-outs of MPPI and the benefits of protecting your mortgage:
- What is a Mortgage Protection?
- Is Mortgage Insurance a Legal Requirement?
- What does Mortgage Protection Cover?
- What are the Different Types of Policy?
- How Much Does Mortgage Insurance Cost?
- Can I get Joint Cover with a Partner?
- Can I Claim on my Insurance Immediately?
What is Mortgage Protection?
So, friends, family and advisors have recommended that you take out MPPI, but you’re still not entirely sure what it is or why you need it…
In-Brief: Mortgage protection insurance explained
There are many different home insurance policies available when buying a property, sometimes it’s unclear how one differs from another. A mortgage protection plan is designed to help you with mortgage repayments if you end up in circumstances that make it difficult or impossible to keep up-to-date with your repayments.
If you are made redundant, suffer an injury or have a long-term illness, mortgage insurance may cover the monthly cost of your mortgage, usually with a one-year payout period.
Do I Need Mortgage Protection Legally?
There are no laws saying you need MPPI, it is not a compulsory policy. However, it is sometimes a condition of a loan to guarantee protection for the lender as well as you, the borrower.
Having said that, we do always advise homeowners to consider one question; If your income was stopped tomorrow or if you become ill, could you afford to make your mortgage repayments on time?
If you had any doubt when answering this question, we highly recommend looking into home loan repayment insurance.
Failing to keep up with the mortgage repayments can result in repossession of your home, so you should do everything in your power to protect yourself and mortgage payment protection insurance is a wonderful safety net for hard times.
What Does Mortgage Protection Cover?
Mortgage payment protection policies only cover your mortgage repayments in the event of an accident, sickness and some unemployment – mainly redundancy.
If you have mortgage protection, you receive monthly payouts to keep up with home loan repayments if you are made redundant, suffer a serious injury, or have a long-term illness and you become unable to work.
There are different types and levels of MPPI policy, and each insurance broker has their own Ts & Cs regarding what, when and how you can claim on your mortgage cover.
Depending on the broker and your level of cover, mortgage protection plans usually cover you for one year, occasionally two. Monthly payments are also usually capped between £1,500 and £2,000 or a percentage of your income, so you might need to think about how you would pay any excess.
If you have enough savings to cover the one-year period that a mortgage protection policy would cover, you might not find it necessary to take out a policy at all.
We also recommend looking over your contract of employment. If you have a very generous sick pay allowance or redundancy payout, you might not feel like it’s necessary to pay for an MPPI policy.
What are the Different Types of Mortgage Protection Policy?
There are three main types of MPPI policy:
- Unemployment Only: Only covers you if you are made redundant
- Accident and Sickness Only: Only covers you if you suffer a serious injury or have a long-term illness
- Accident, Sickness and Unemployment: This policy covers you suffer a serious injury, have a long-term illness OR if you are made redundant
What Does Mortgage Insurance Cost?
Mortgage insurance costs are calculated on many factors. There is no one-size-fits-all and every individual is quoted on their unique circumstances.
Factors that may impact your monthly mortgage protection insurance premiums include (but not always limited to):
- Occupation – If your job is a high risk, your premium might be higher
- General Health – Current weight, health, family medical history etc.
- Current Lifestyle – Activity levels, sports players etc.
The average cost of mortgage protection insurance also varies depending on the level of cover you purchase. For example, sickness only or unemployment only policies will be cheaper than MPPI cover that protects you in redundancy AND illness.
Can I Get Joint Mortgage Protection Insurance With a Partner?
You have a couple of options for mortgage protection insurance when you are in joint property ownership; a single policy or a joint policy.
With joint homeownership, both partners often take out mortgage protection cover, but there is nothing to state that both parties NEED cover. If one homeowner covers the entire cost of the mortgage with their income, there wouldn’t be any need for the second party to have mortgage protection cover.
However, if both partners contribute to the mortgage repayments, you should both consider cover. Joint mortgage cover could be cheaper than two individual policies, but if one policy is claimed on, the other will remain untouched and in force.
Can I Claim on My Mortgage Protection Policy Straight Away?
A mortgage insurance plan is likely to have an ‘exclusion period’ that prevents you from claiming immediately.
Mortgage protection companies put exclusion periods in place to stop policyholders from taking out insurance AFTER they have suffered the injury, for example. This period tends to be slightly longer for mortgage protection insurance that covers unemployment.
Aside from the exclusion period, you should check the T’s & C’s for details of any ‘agreed waiting periods.’ An agreed waiting period is the time between you becoming unable to work and the payouts from the insurance company starting. Also known as a ‘deferred period’, this time frame could last from one to six months.
You can receive back pay for any mortgage payments you make during your deferred period by taking out ‘back to day one cover’, but this could increase your monthly premium.
Seek Advice From a Mortgage Advisor
If you’re still unsure whether your unique circumstances warrant mortgage payment protection insurance is to speak to a professional mortgage advisor. Not only can they guide you through the MPPI process, but they can also advise on other insurance policies that you might want to consider when buying or selling a home.
Do you need help finding a mortgage advisor you can trust? We can put you in touch with an advisor below.