Mortgage repayments are the biggest single outgoing for most households and the duration of a mortgage can be as long as 40 years. These repayments need to be made regardless of whether your circumstances change due to redundancy or ill health. Failure to pay can ultimately result in your home being repossessed. Mortgage insurance offers protection against these risks by guaranteeing these payments are made should you fall on hard times.
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Mortgage Payment Protection Insurance (MPPI)
MPPI is one of the most common types of insurance and guarantees your monthly repayments should you suffer an accident, ill-health or lose your job. The term of cover of varies but typically lasts for one or two years, depending on the type and the cost of the policy taken out.
Income Protection Insurance (IP)
IPP is often taken out as an alternative to MPP. Rather than guaranteeing your mortgage repayment, IP covers a proportion of your monthly salary should you be unable to work due to ill health. Which?, the consumer advice website, recommends taking out IP rather than MPP if you only want protection against being unable to work. This is due to IP providing more comprehensive coverage to fund your monthly outgoings. However, due to this added protection, IP is usually more expensive.
There is no single cost for mortgage insurance that will apply to all homeowners. Which? Suggests payments can vary from around £15 to £100 a month, depending on your circumstances and the value of your property. Premiums can vary significantly based on a range of factors such as the cost of your average monthly repayment, your age, which product features you select and the type of industry you are employed in.
MPPI policies are often taken out when a mortgage is agreed with a bank or building society. However, you are not required to take out your MPPI policy with your mortgage lender or any company associated with your lender. Independent policies can often be cheaper and in some cases offer better protection. Before taking out a mortgage protection policy, seek advice from an independent mortgage adviser who can help you find the policy most suited to your needs.
Insurers maintain the right to increase MPPI premiums every year, regardless of the initial rate agreed. Which? reports that insurance firms have been accused of increasing premium costs whilst reducing coverage terms at the same time. This led to the Financial Services Authority (FSA) imposing restrictions in 2009 to ensure any proposed raises were reasonable. As of 2013, the FSA has made no further intervention, suggesting these arbitrary increases are no longer a problem. However, Which? recommends finding a policy that has fixed premiums for at least five years to protect against potential increase.
The controversy surrounding the mis-selling of Payment Protection Insurance (PPI) has led many consumers to be wary of taking out mortgage insurance even though it can serve as an important financial safety net. However, MPPI differs in that it is directly linked to mortgage repayment cover and was not subject to as much mis-selling as PPI.
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