Guide to mortgage payment protection insurance
- Mortgage payment protection is a form of income protection that can insure your mortgage payments in case you lose your job or find yourself unable to work
- When you can claim and how much cover you have will depend on your policy and you should look out for exclusions
- Consider state benefits plus other income protection, critical illness and life insurance options before committing
Mortgage payment protection insurance (MPPI) can cover your mortgage repayments in full so long as they don't exceed 65% of your gross annual salary, and is available for both repayment (capital and interest) mortgages and interest-only mortgages.
Most plans?that cover your mortgage will pay you for up to 12 months or until you return to work - whichever is sooner.
There are also longer-term options available that can cover your bills - so hopefully you won't have to worry about the electric running out!
When you might need MPPI
Mortgage payment protection may be suitable for you if:
- You'd struggle to keep up with your monthly mortgage payments if you weren't able to work due to illness, accident or forced unemployment
- You're self-employed and therefore would receive no sick pay or redundancy package
The deferred or excess period is the amount of time left between the day you stop working and the day you receive your first MPPI payout. You'll then continue to receive monthly payouts until you return to work or the fixed period finishes, whichever comes first.
It'll depend on the policy and provider as to how long the excess period lasts, but it'll typically be between 30 and 180 days. Some policies offer 'back-to-day-one' cover, which could reimburse the money you laid out during the excess period.
You might be able to choose the length of your excess period and the longer it is, the lower your premium will be. Although this may sound like a great idea, you should make sure you choose an excess period that won't cause you to run out of money.
When MPPI may not be suitable
Mortgage protection insurance may be unnecessary if you already have alternative cover, or if you have adequate savings and/or another method of supporting yourself. For example, you may not need MPPI if:
- You already have income protection insurance which will cover your repayments
- You get a generous amount of sick pay - in this case you may want to think about MPPI to solely cover redundancy
- You'd be eligible for a comprehensive redundancy payout which you could live off comfortably until you found another job
- Government benefits would provide enough money to live on and to pay your mortgage
Did you know...?
- In January 2017, the average UK house price in England was ￡234, 794
If you do have a mortgage protection policy, you may not be eligible for certain government benefits.
MPPI for the self-employed and those in non-standard employment
MPPI is available to those on permanent contracts, self-employed workers or those who work part-time for more than 16 hours a week.
Anyone on a temporary, casual or seasonal contract will not be eligible for cover, but contract workers may be if they're contracted for at least 12 months of continuous service with the same employer. Always check with your insurer that your type of employment contract qualifies for cover.
Exclusions on mortgage protection policies
Exclusions on mortgage protection policies will differ from insurer to insurer, so make sure that you've read the terms and conditions of your policy carefully to see exactly what you're covered for. There might be exclusions for:
- Voluntary unemployment (including voluntary redundancy) or unemployment resulting from misconduct, fraud or dishonesty
- If you were aware that you may be made redundant when you took out the policy
- Pre-existing medical conditions (conditions that were diagnosed or treated before the insurance policy was taken out)
- Stress and back-related injuries or illnesses
- Chronic medical conditions (those that are long term and incurable)
- Pregnancy and childbirth
- Self-inflicted injuries
It's essential that you supply accurate information when applying for a policy - failure to do so would mean you'd be unlikely to get an appropriate quote and, in the event of a claim, your policy may be invalid.
Other insurance options
As stated, mortgage protection is a form of income protection. For more information on related products such as unemployment cover, PPI and loan protection, see our income protection guides.
Other products you may want to think about before committing to mortgage protection include mortgage life insurance, which could pay out in the event of your death during the policy period, potentially clearing your mortgage so your loved ones won't have to worry about repayments.
Critical illness cover is often bought in conjunction with a life insurance policy, but it does exist as a stand-alone product as well. It could provide you with a lump sum if you contract any specified illnesses during the term of the policy. Remember that if you have an illness that isn't shown in your policy, you won't receive a payout.