Why Mortgage Payment Protection?
Mortage protection covers your mortgage repayments should you suffer accident, sickness or unemployment.
Designed to protect your monthly mortgage repayments and associated bills such as council tax and utilities.
41% of employees have been made redundant or suffered long term ill health during their working life. Met Life 2012
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What does Mortgage Payment Protection cover?
Accident & Sickness
With mortgage payment insurance you can cover the risk of having to take time off work due to illness or injury, thus ensuring you can keep up with your repayments.
The vast majority of MPPI plans also have the option to cover yourself against the risk of forced redundancy. Some plans can just cover unemployment only.
Important! As most MPPI plans can only payout for 12 months it makes sense to consider adding critical illness cover to your mortgage life insurance or taking out a long-term policy to cover the risk of serious illness or injury.
How does Mortgage Payment Protection work?
You cease working due to Accident, Sickness or Unemployment.
You make a claim with the insurer (including your GP note / redundancy letter).
The insurer starts paying out a monthly benefit after your initial deferred period.
The insurance plan pays out until you return to work or reach the maximum payout length of your policy.
Do I need Mortgage Payment Protection Insurance?
When deciding if MPPI is worthwhile it makes sense to know the facts about what risks we all face:
The Incapacity Risk:
1 in 10 people have been unable to work due to illness or injury for over 6 months (The Guardian / Unum Survey, 2011).
The Unemployment Risk:
1 in 5 people have been made redundant at some point during their working life (Met Life, 2012).
How long would you be able to keep up with your mortgage payments if you lost your income?
Your Key Options
Choose your level of cover
It is usually possible to cover up to 125% of your monthly mortgage payments, provided this is within 65% of your gross (pre-tax) income.
Your deferred period
The length of time you would need to be off work before the policy starts paying out. The shortest deferred period is 30 days and the longest is 12 months.
Your payout length
Most plans can payout for either 12 or 24 months but some general income protection plans can payout for the entire length of your mortgage.
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What are my options?
MPPI cover provides two key forms of protection, protecting against the risk of forced unemployment and the risk of being unable to earn an income due to accident or sickness.
Accident and Sickness Cover Only
Mortgage protection is quite flexible in its nature and thus allows you to opt for the illness and injury proportion of the cover only. Such mortgage protection will pay out a benefit should you be unable to work due to illness or injury as certified by a doctor.
Unemployment Cover Only
Should you not require the accident and sickness proportion of the cover you can opt for an unemployment only plan. Generally speaking, such cover will pay a monthly benefit should you have been made redundant and are registered with the relevant government agency as unemployed and are actively looking for employment.
Accident, Sickness & Unemployment Cover
A standard MPPI plan will combine both the illness and injury and the unemployment options protecting your mortgage against both types of risk.
How much am I able to protect?
The insurers recognise that should you be unable to earn an income there will be additional costs over and above your monthly mortgage payments which still need to be paid. When selecting the level of benefit, you are eligible to cover your mortgage repayments plus an additional 25% for associated costs such as council tax and utilities.
Across are panel of insurers the maximum benefit does vary, however generally speaking the monthly benefit is limited to a maximum of £2,000 or 65% of your gross monthly income, whichever is the lesser.
How long am I covered for?
MPPI is a short term payment protection product and as such the maximum benefit period is limited to either 12 or 24 months.
Should you be unable to earn an income due to either accident, sickness or unemployment, assuming you have selected a 12 month protection plan the policy would pay out a monthly benefit either until you return to work or 12 months, whichever the lesser time period.
MPPI policy options
The deferred period which is also known as the excess period is the length of time after which eligibility for the payment of the monthly benefit will start. Take a 30-day deferred period, such an excess period means you would have to be out of work for 30 days before you are eligible for a claim, you would then wait another 30 days before you receive your first payment.
Back to Day 1 cover
A back-to-day one excess is very similar to a standard 30 day deferred period in the fact that you would wait 30 days before your 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 have been off work on day 31.
Unemployment exclusion period
With all mortgage payment protection plans there is an initial exclusion period on the Unemployment cover which tends to be around 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 and unemployment claim would not be valid.
If you already hold an MPPI policy or are taking out cover at the same time you are applying for a new mortgage this unemployment exclusion period is often reduced or waived completely.
Are there any general MPPI policy exclusions?
There are a number of common exclusions written into the terms of mortgage protection plans with the most common being detailed below.There are a number of common exclusions written into the terms of mortgage protection plans with the most common being detailed below.
MPPI Unemployment Exclusions
- You are notified about the risk of unemployment within the initial exclusion period, even though your unemployment may not take place until after this period;
- It follows a period of casual, temporary or occasional work;
- You are unemployed during a period in which you have received payment instead of working your notice;
- Voluntary unemployment or voluntary redundancy other than to become a carer;
- You are dismissed by your employer because of your own misconduct.
MPPI Accident & Sickness Exclusions
- Illness or injury resulting from you deliberately injuring yourself;
- Accident or illness resulting from a pre-existing condition;
- Injury or sickness resulting from a chronic condition that you knew about or should reasonably have known about at the start date, whether it needed medical attention at that time or not;
- Caused by normal pregnancy and childbirth-related conditions
Do I need advice?
Whether you have a quick policy question or require a complete review of your mortgage protection we are here to help. It is our job to ensure you have all the information needed to make as informed decision as possible so please do not hesitate to get in touch, call us on 0208 432 7333.
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