Mortgages Section

10 Top Tips for buying Mortgage Payment Protection Insurance

March 2006

If you're considering Mortgage Payment Insurance or want to know what it does, then this is an essential read.

When you've taken out a mortgage you've make a long-term commitment to maintain the monthly repayments for the full duration of the mortgage.

That's going to be over many years but you're making that commitment without the benefit of a crystal ball - no one knows how your circumstances are going to change, for good or bad. So that must represent a big risk. Mortgage Payment Protection Insurance (MPPI) is one of a range of insurances that includes life insurance and critical illness insurance, which you can reduce that risk and protect your family's finances.

MMPI Basics

The purpose of MPPI is to ensure that your mortgage repayments will continue to be paid if you're off work for an extended period due to accident, sickness or unemployment
Just consider the risks that this type of insurance is designed to alleviate -

Home repossessions run at about 90 per day. Most of these are due to financial problems associated with unemployment
One third of all people aged between 25 and 34 have experienced unemployment for more than a month
During the term of their mortgage most people experience at least one period of illness, or the repercussions of an accident, which will keep them off work for more than 3 months.

What Type Of MMPI Do You Need

If you have a -

Standard repayment mortgage - you're well advised to set the value of monthly MPPI cover to equal the value of your monthly repayment plus your life insurance and home & contents insurance premiums
Interest only mortgage - your cover also needs to include the monthly cost of the investment plan you're using to repay the mortgage at the end of its term

Also remember that if your mortgage repayments subsequently change due to interest rate movement, then you need to contact your insurer and get the policy similarly modified. Oh yes, the nice bit - if you claim then the income payout is totally tax-free!

10 Top Tips for buying Mortgage Payment Protection Insurance
1	Don't think that you can only take out MPPI when you arrange the mortgage. You can take out MPPI at any time.
2	Be aware that some mortgage lenders will try to pressurise you into taking out MPPI along with your mortgage. If this happens, make sure you find out how much extra the cover will cost each month and then get on the Internet and get a few competitive quotes. Most people will find savings of up to 60%
3	Mortgage lenders will only quote you for the cover needed to meet your monthly mortgage repayments. Remember our advice to include cover for the cost of your mortgage life insurance, your home & contents insurance and the cost of any investment plan you have allocated to repay your mortgage (the latter item applies only to interest only mortgages).
4	If your employment is seasonal or casual you won't be able to claim on an MPPI policy. Every policy has what are called exclusions and seasonal and casual work is just a typical one. Exclusions are the circumstances under which you cannot make a claim. Always read these exclusions before you take out the policy and if you can see that your circumstances mean that you're unlikely to be able to make a valid claim, don't buy the policy. In some cases, the policy exclusions will eliminate 50% of potential claims.
5	Don't automatically opt for the cheapest MPPI policy. The conditions under which policies pay out do vary so check them out carefully.
6	Premiums are always a reflection of the extent of the exclusions in the policy, the level of cover provided and the insurers general marketing strategy.
7	Don't get confused by the different names given to MPPI. It can also be described as Accident Sickness and Unemployment Insurance, Payment Cover and Payment Care. Basically, they all do the same – but remember to check out the exclusions!
8	Most policies state that you have to be off work for a minimum period of time before you can make a claim. The maximum period you'll find is 60 days but many policies reduce this to 30 days - and some will then backdate the payment to the first day you were off work. You'll find full details about these aspects in the policy's Terms and Conditions. Always check these out before you buy and remember when you're comparing prices, to compare like with like.
9	Don't confuse MPPI with Mortgage Indemnity Insurance (MIG). Mortgage Indemnity Insurance provides cover for a mortgage lender for any losses the lender might suffer as a result of a property on which they provided a loan being sold for less than the amount of the loan. Any payout under a MIG policy goes to the lender, not you!
10	If you already have Permanent Health Insurance your may not need MPPI it is therefore very important to fully check out the terms of you PHI policy.

Watch Out For Duplication Of Insurance Policies

Be aware that there is a level of duplication between Critical Illness Insurance and MPPI
MPPI will pay you an income during the insured period for any illness that prevents you from working
Critical illness Insurance will payout a lump sum if you are diagnosed with any of the chronic illnesses listed on the critical illness policy
So if you have a critical illness claim, then you will almost certainly also have a claim on your MPPI policy
However, if the illness that's keeping you off work is not listed on the chronic list, and all ordinary illness aren't, then only your MPPI policy will payout.

Summary

Shop Around! As with most types of insurance, the Internet is the cheapest place to shop and many sites will enable you to arrange cover immediately online. Try searching under mortgage payment protection insurance rather than just mortgage protection. That search term is totally specific and you're bound to find what you want.

Michael Challiner