Information on Accident & Sickness and Unemployment Insurance (Mortgage Payment Protection Insurance)
Take Cover for a Rainy Day
How Insurance can protect you from Mortgage Arrears
home is at risk if you do not keep up the repayments on a mortgage
or other loan secured on it.”
You have probably seen
this statement on mortgage advertising, but have you ever stopped
to think what it means?
If you fall behind with your mortgage repayments and cannot
catch up again, you could eventually lose your home. But you
can take steps to protect yourself against this risk by taking
out Mortgage Payment Protection Insurance (MMPI)
This information has been prepared by the Council of Mortgage Lenders
and the Association of British Insurers, in consultation with
the Government, to explain what MPPI is and to answer your questions.
What is MPPI?
Mortgage Payment Protection Insurance (MPPI) pays your monthly
mortgage payments for a specified period if you suffer accident,
sickness or unemployment. Lenders and insurers have agreed
to adopt certain minimum standards for MPPI, so that you can
be confident that the level of cover you will be offered meets
or exceeds these.
How does MPPI work?
You pay a premium each month while the mortgage is running. If
you become unemployed, or unable to work due to an accident
or sickness, the policy starts to pay out (usually direct to
your lender) to pay your mortgage.
To keep the costs of the insurance down, there are some periods
where you will not be covered (you should check the individual
policy for exact details). The main ones are an “exclusion
period” of up to 60 days when you first take out your policy,
during which any claim for unemployment would not be met (although
claims for accident or sickness would be paid).
In addition, there is an “excess” or “waiting” period
of up to 60 days for each claim, during which no payments will
be made. So it will make sense to try to keep enough money in
savings to cover two months worth of mortgage payments, even
if you have MPPI. There are some circumstances when MPPI will
not cover you – for example, unemployment caused by minsconduct,
or that you knew was impending at the time you took out the insurance,
or sickness claims caused by certain pre-existing medical conditions.
does it work if I have a joint mortgage with someone else?
The MPPI can be set up so that it covers both of you, usually
by allocating a proportion of the MPPI to each person (e.g. 50/50
or 60/40). If one person needs to claim, then the amount of the
benefit payment will be the proportion of the MPPI allocated
to that person. It is also possible to allocate the MPPI on a
100/100 basis, so that 100% of the MPPI is paid, even if only
one of the joint borrowers loses their income. This type of arrangement
will generally require higher premiums.
What if I am self-employed or on a contract?
You will generally be able to take out MPPI even if you are
self-emplyed or on a contract. But make sure you check the details
of the circumstances in which you can make an unemployment claim.
How do I buy MPPI?
If you are taking out a new mortgage, you will probably be offered
MPPI by your lender or the intermediary arranging your mortgage.
Unless the MPPI is part of a mortgage “package”,
it is up to you whether you take the MPPI offered with the
mortgage or to buy it from elsewhere. If you already have a
mortgage, you may be able to buy MPPI from your lender , or
through an insurance broker, or direct from an insurance company.
MPPI is usually cheaper (and the terms may be more generous)
if you take it out at the time you start your mortgage, rather
than leaving it until you have had your mortgage running for
What happens if I need to claim?
Your policy document will tell you how to claim. Usually, you
need to obtain a claim form, complete it and send it to you
insurer, together with some evidence (such as a redundancy
notice) to support your claim. If you take a temporary job,
then provided you let your insurer know beforehand, you can
interrupt a claim without having to pass the 60-day excess
period again when your temporary employment ends.
What if I have a complaint?
You should first contact whoever sold you the policy, or the
insurer. They will consider the complaint. If this does not
resolve the problem, you can contact the independent Insurance
Check it Out!
Most people should consider taking out full MPPI, covering the
full amount of the mortgage payments following accident, sickness
or unemployment, and this is what you will generally be offered
in the first instance.
But if you already have other cover – such as accident
or sickness cover from your employer, Income Protection or Critical
Illness insurance, or substantial levels of savings – you
may decide that you do not need the full level of MPPI insurance.
If so, you may decide to “top up” your existing cover
(perhaps by taking out the unemployment-only element of MPPI),
or you may decide to that you do not wish to take out MPPI at
all. But be very careful that you are not being over-optimistic
about your ability to meet your mortgage and other commitments
if you decide not to take out MPPI. If you decide not to take
out MPPI cover, your lender or intermediary may ask you to sign
your confirmation that this is the decision that you have reached,
after considering all the circumstances. Signing this confirmation
will not affect the willingness of your lender to try to help
you if you do not take out MPPI and subsequently fall into arrears
with your mortgage repayments at a later date. However, if you
have MPPI or some other form of protection, both you and your
lender with have greater scope for dealing with payment difficulties.
For further information, contact your mortgage advisor. Remember – no
one expects the worst to happen when they take out a mortgage,
but how would you cope if it did? Don’t risk losing your
home – protect your mortgage repayments.
Other Useful Information
The Association of British Insurers provides other leaflets and
information on insurance. These are available on its website
at http://www.abi.org.uk or by writing to Association of British
Insurers, 51 Gresham Street, London EC2V 7HQ.
The Council of Mortgage Lenders provides other leaflets and
information on mortgages. These are available from the CML’s
enquiry line on 020 7440 2255
The Benefits Agency has leaflets and information on welfare
benefits (including Income Support and Jobseeker’s Allowance).
A specific leaflet on MPPI titled Protecting Your Mortgage (Ref
No: IS800) is available. You can find the address and phone number
of your local office in the local telephone directory.
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