Do You Understand Mortgage Payment Protection Insurance?

Posted by Nick Niesen on October 29th, 2010

Sadly not many people do truly understand mortgage payment protection insurance (MPPI), yet each year many buy it alongside their mortgage thinking that it will provide them with the income needed to keep the roof over their head if they should come out of work. While in most cases it can do this there are certain exclusions which mean it you could be ineligible to claim. Unless you know about these and have checked them in the small print to make sure your circumstances would permit you to make a claim, then your cover could be nothing more than a waste of money.

Mortgage payment protection insurance can work but it is essential that you understand what you are buying and what a policy can and cannot do. Typical reasons which could mean you would be ineligible to claim include if you are only working part time, are of retirement age, self-employed or if you have a pre-existing medical condition at the time of taking out the policy. Policies differ and while these are the most common you can find others listed in the small print of the policy so it is essential to read them from top to bottom.

If a policy is suited to your circumstances then it would begin to give you the tax free sum you agreed upon at the time of getting your quote, which was based on your age and amount needed each month to make sure that you can carry on servicing your mortgage repayments. You do have to be out of work for a set period of time before the policy kicks in and again this can vary with providers but is usually anywhere between the 31st day and the 90th of being out of work. Once the policy has kicked in then it would continue to pay out for between 12 and 24 months, which means that you have plenty of time to recover and get back to work without the added worry of finding the mortgage money each month.

Some of the biggest problems with mortgage payment protection insurance cover have been the lack of information regarding the exclusions, how much the cover costs in total over the term of the mortgage and the high cost of the premiums. High street lenders charge way over the odds for the cover and this can add hundreds more onto the cost of the mortgage than it should if you had gone with a specialist provider. Besides saving you a great deal on the premiums each month and total amount you pay for the cover, the standalone provider will give you all the information you need to ensure that a policy is suitable for your needs before you buy, this means you are able to make an informed decision regarding the suitability of the policy before you buy.

One of the biggest changes to come out of the investigation by the Financial Services Authority which started in 2005 after a super complaint was made to the Office of Fair Trading by the Citizens Advice, is the planned introduction of comparison charts in March 2008. The charts will allow the consumer to make an informed decision after answering a set of questions in relation to policies, along with this it will show how much the cover will cost and also highlight the fact that there are exclusions, something which at the moment is clearly lacking.

Mortgage payment protection insurance has to be understood and right now the only place where you can get the information needed to determine if a policy is suited to your needs is to go with an ethical specialist in payment protection.