Mortgage Payment Protection Insurance (MPPI) covers your mortgage repayments should you suffer from an accident, sickness or unemployment.
Should a claim arise it will pay out a monthly income that allows you to keep up with your mortgage repayments for up to 12 or 24 months.
You can cover an additional 25% of the mortgage repayments to help meet other costs, such as bills and everyday expenses.
What Does Mortgage Insurance Cover?
There is flexibility in the type of risk you can protect with MPPI, although naturally the more risk you wish to protect the higher the overall cost. You can opt to protect against the risk of illness or injury as a standalone policy – the same goes for forced redundancy – or you can combine the two.
Accident & Sickness Insurance
This will cover your monthly mortgage repayments should you be unable to work due to illness or injury. When considering Accident and Sickness Insurance it is important to check the policy wording to make sure the insurer uses an ‘Own Occupation’ definition.
Unemployment Insurance
Unemployment cover will make sure you can meet your monthly mortgage repayments should you be made forcibly redundant through no fault of your own. To claim your benefits, you will need to be registered with the relevant government agency as unemployed and be actively looking for work.
Can We Get Joint Mortgage Insurance?
Although less common there are some Joint MPPI policies which cover each party’s proportion of the mortgage. Should either party be unable to earn an income and meet their proportion of the monthly repayments the policy kicks in.
It is more common however to take out two individuals policies as the cost difference per person is negligible. When working with a couple who have a joint mortgage we often set-up an Accident and Sickness Insurance policy per person.
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Do I Need Payment Protection for My Mortgage?
Although it is not compulsory to take out protection when you get a mortgage there are many reasons why you might nonetheless need Mortgage Protection Insurance.
According to a recent Drewberry survey, more than 1 in 4 people had less than £500 in cash savings in the bank for emergencies. How long would your savings last if you couldn’t work?
A mortgage is a huge financial commitment that takes decades to repay, so it makes sense to protect it in case you can’t work at some point during the mortgage term.
If you had to default on your mortgage through accident, sickness or unemployment, you’d lose everything you’ve worked so hard to build.
Do I Need Mortgage Payment Protection or Income Protection?
This is where it gets a little confusing. Although Mortgage Payment Protection may seem similar to traditional Income Protection the level of cover, underwriting and structure of the policy is very different.
While Mortgage PPI can be a very valuable product to protect your mortgage, there are some areas where this particular insurance product can fall short.
Where MPPI lacks, however, Income Protection Insurance excels and for some people it may be the case that you should consider Income Protection instead of MPPI.
Mortgage PPI
Income Protection
Linked to your mortgage repayments
Linked to your income
Short term cover between 12 and 24 months
Optional short- or long-term cover, lasting until your retirement
Suited occupation cover
Own occupation cover available
Reviewable premiums
Guaranteed, age banded or reviewable premiums
The main benefit of choosing Income Protection over MPPI is that the benefits are tied to your income instead of your mortgage repayments.
You can insure up to 65% of your monthly earnings with Income Protection, which means that your benefits can cover more than your mortgage payments.
Long-Term Protection
The best Income Protection Insurance is long-term, which means it will pay out for as long as you need it to, offering a monthly income right up until retirement if necessary.
Getting ‘Own Occupation’ Cover…
Another downside of Mortgage Protection Insurance is that it tends to use a ‘suited occupation’ definition of incapacity. This means if you are too ill to do your current job, the insurer is entitled to assess whether you can do any other job you’re ‘suited’ to before you can make a claim.
The best Income Protection, on the other hand, uses an ‘own occupation’ definition of incapacity, which means you’re entitled to a payout if you can’t do your own specific job through illness or injury.
Mortgage Payment Protection Exclusions
When taking out Mortgage Payment Insurance, your insurer will likely exclude any pre-existing medical conditions you may have. This type of cover isn’t usually medically underwritten from the outset, so you won’t know what is and isn’t medically excluded until you try to claim.
While exclusions will differ depending on your insurer, there are some common exclusions that you will find written into the terms of most Mortgage Payment Protection plans:
Common Accident & Sickness Exclusions
Your injury or illness is related to a pre-existing condition
Your injury or illness was self-inflicted
Your absence from work is related to normal pregnancy and childbirth.
Common Unemployment Exclusions
You were notified and given fair warning about the risk of unemployment during the initial exclusion period
You’re unemployment following a period of part-time, temporary, or intermittent employment
You voluntarily became unemployed (with the exception of leaving work to become a carer)
You were dismissed by your employer because of your own misconduct.
How Much Does Mortgage Protection Insurance Cost?
The cost of Mortgage Protection Insurance will depend on a variety of factors, including:
Your age
The older we are, the more likely we are to need to claim on the accident and sickness element of the policy due to illness, and so the higher premiums will be.
How much cover you need
The more you need each month to cover your mortgage, the higher the price of Mortgage Insurance will be.
Length of cover
Similar to age, the longer you run a policy for (usually matching the length of your mortgage) the more premiums will cost due to your increased age at the policy’s end.
Your smoker status
Smoking has a proven link to a number of serious illnesses and, as such, smokers pay more for their Mortgage Payment Insurance.
In the below table, we’ve laid out the monthly cost of Mortgage Insurance for an individual of three different ages. To come up with these figures (correct as of April 1st, 2019 and representing the cheapest quotes from across the UK market), we’ve assumed:
They’re non-smokers
They’re an office worker
They want £1,000 worth of cover up until the age of 65
They have a 4 week deferral period
The benefit will remain level over time.
Age
Accident & Sickness Insurance
Accident, Sickness & Unemployment
30 years old
£7.48 per month
£29.78 per month
40 years old
£12.37 per month
£39.77 per month
50 years old
£20.78 per month
£51.28 per month
Mortgage Payment Protection Policy Features
The initial options you are given when taking out your cover are fairly straightforward, but some cover choices you need to make can have a big impact on your premiums and your ability to claim.
The deferred period – also known as the excess period – is the length of time you need to be out of work before you can claim on your Mortgage Insurance.
The shortest available excess for this type of insurance is 30 days. This means that you will need to be out of work for 30 days before you are eligible for a claim and then wait another 30 days in order to receive your first payment.
Even with back to day one cover, you would wait 30 days before you are eligible for a claim. However, rather than waiting until day 60 before your first benefit payment, you would be paid back for the first 30 days that you were off work on day 31.
With all Mortgage Insurance plans, there is an initial exclusion period on the Unemployment cover which tends to be up to 120 days.
Should you be made aware of the risk of redundancy or be told you are going to be made redundant during this first 120 days of the policy, you typically can’t claim for unemployment cover.
Common Mortgage Payment Protection Questions
Do you need Mortgage Payment Protection Insurance?
Mortgage Payment Protection Insurance isn’t a requirement to get a mortgage, although sometimes lenders make it feel as though it is! However, you don’t have to take out Mortgage Payment Protection Insurance if you don’t want to.
This said, think carefully about how you’d meet your mortgage payments if you became ill or unemployed. Mortgage PPI is there to help you keep up with those repayments should you be unable to through illness or redundancy — would you be able to manage without it?
Of course, some people may already have arrangements in place to help them keep up with their mortgage in the event of an illness, such as Income Protection. If this is the case, it’s unlikely to be necessary to double up on cover for illnesses.
Is MPPI the same as PPI?
Mortgage Payment Protection Insurance (MPPI) is very similar to Payment Protection Insurance (PPI), just specifically for a mortgage. The main difference is that MPPI covers a debt secured on a property whereas PPI is only for unsecured debts, such as bank loans or credit cards.
With MPPI, you typically receive the money each month and use that to pay the mortgage lender; with PPI, the money typically goes straight to the lender.
Is Mortgage Protection Insurance the same as Mortgage Life Insurance?
No, these are different products. Mortgage Payment Protection Insurance is designed to pay out a sum each month equivalent to your monthly mortgage repayments if you can’t work through illness, injury or you’re made unemployed.
You’ll receive these payouts for a short period, typically 12-24 months only.
Life Insurance is designed to pay out a single, much larger lump sum, equivalent to your entire outstanding mortgage balance, should you pass away. This allows your loved ones to clear the debt after you’re gone so they can stay in the home rather than having to sell it to repay the mortgage company.
Compare Best UK Mortgage Payment Protection Insurance
Aegon was founded as Scottish Equitable in 1831 in Edinburgh and their main headquarters still remain there today. In 2018 it won the ‘Life Insurer of the Year’ Award at the British Claims Awards.
AIG was re founded in 2008 as Aegas Protect and was eventually acquired by insurance giant American International Group Inc. in 2014. In 2018, the company won the ‘Best New Product (Income Protection)’ Award at the Protection Review Awards.
Aviva first began as Norwich Union in 1797, which merged with CGU PLC in 2000 to become Aviva. Today, it is the largest insurance group in the UK. In 2017 it won the ‘Best Customer Service’ award for the second year running.
With links going back as far as 1888, The Exeter as it is today was founded in 2008 when two friendly societies joined forces: The Exeter Friendly Society and Pioneer Friendly Society. As a mutual friendly society, they operate for the benefit of its members. The Exeter won for three years in a row the ‘Best Income Protection Provider’ Award between 2011 and 2013
2017 payout rate: 91%
Maximum cover: 60% of the first £100,000 of your taxable income and 40% of your income above £100,000
Legal & General was founded in 1836 in a Chancery Lane coffee shop. In 2018, the company won the ‘Protection Provider of the Year’ Award at the Personal Touch Financial Excellence Awards.
2017 payout rate: 95%
Maximum cover: 60% of gross earnings up to £60,000 and 50% of additional earnings
Liverpool Victoria has won the ‘Best Income Protection Provider’ Award at the Investment Life & Pensions Moneyfacts Awards for 9 years in a row between 2010 and 2018.
The Royal London mutual society was originally founded in 1861, although originally as a friendly society. Today it is one of the largest mutual insurance providers in the country. In 2018, it received a 5-star rating for its protection service for the fifth year in a row at the Financial Adviser Service Awards.
2017 payout rate: 92.1%
Maximum cover: 65% of gross earnings up to £15,000 per month and 55% of additional earnings
In 2017, Vitality’s policy received a 5 star Defaqto rating and has done so for the past 8 years running.
2017 payout rate: 96%
Maximum cover: 60% of your earnings capped up to £2,500 per month and 50% of any earnings above
Guaranteed / Reviewable Premiums
Own Occupation / Activities of Daily Living / Special Incapacity Definition
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Why Speak to Us…
We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.
There is no fee for our service
We are independent and impartial Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
We’ve got bargaining power on our side
This allows us to negotiate better premiums for you than you going direct yourself.
You’ll speak to a dedicated expert from start to finish
You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
Gain the protection of regulated advice
You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
Claims support when you need it the most
You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.
If it is all getting a little confusing and you need some guidance then please do not hesitate to get in touch.
Either pop us a call on 02084327333 or email help@drewberry.co.uk.