Mortgage Payment Protection Insurance (MPPI) may not be your prime consideration when taking out ahome loan. However, recent Government legislation now ensures policies meet or exceed minimum standards, which is reassuring when you are looking at the terms of a policy.

Many people think they can rely on State Benefits or savings to pay the mortgage in the event of them being unable to work. However research has shown that both of these sources of income would be inadequate to cover their monthly repayments.

The Basics

Some loans are conditional on MPPI being taken out, but it is not an overall blanket requirement. However, it is prudent for a person signing up for a mortgageto consider taking out MPPI. It is particularly important when the person considering a mortgage is overstretched financially, as no job is safe nowadays. Any bills relating to a mortgage should be paid under the terms of the policy … including repayments and interest.

You should not rely on State Benefits, as they are means tested. The majority of your savings will have to be spent before you can turn to benefits and, in any case, they take about 9 months to pay out.

If you choose the right MPPI policy it will start to pay out 30 days after you stop work, either through redundancy or illness. Most policies will continue to pay out for twelve months, during which time you are expected to recover from your illness or find another job.

Costs, payments and providers

After having told your insurer that you are out of work and they have verified your claim, you will begin receiving monthly payments about 30 days after you stopped work. The payments are normally made direct to the lender, although occasionally the customer receives the payment

The cost of MPPI does not vary much between different providers. The majority of banks andbuilding societies charge 450 pounds a year to cover a mortgage payment of 650 pounds a month. The salesman gets a substantial commission for persuading you to buy, so you should strongly resist any pressure selling techniques he may employ.

Your mortgage lender or broker/adviser will normally try to sell you MPPI when you sign up for yourmortgage, although it can also be bought as a stand-alone product. If you wish to take the latter route, you can source a list of providers offering MPPI through the website run by the Association of British Insurers.

If a lender insists that you should take out insurancewith them, treat the offer with grave suspicion and shop around elsewhere before committing yourself. Policies are also available that cover other bills, like car loan and credit card repayments, in the event of you becoming unemployed or ill.

A Couple of Things to Look Out for

Depending on your insurance company, a jointmortgage protection insurance may be available that covers both you and your spouse and pays out when either of you die.

If you refinance, see if reissuing your policy will get you a better premium.

If you default on your mortgage, check with your life insurance company and see if they will extend your cover.