Mortgage Payment Protection Insurance
Mortgage Payment Protection Insurance (MPPI) does just what it says on the tin; it guarantees the insured's mortgage payments.
In the event of illness or unemployment, the insurance company will pay a monthly payout equal to that of the monthly mortgage payments so that the property does not get repossessed in times of need. They usually only last for a certain amount of time though, so for example, a deal may cover you for 12 months after losing a job.
It is possible to get mortgage protection insurance linked into life insurance so that upon the insured's death, the insurance company will pay the mortgage payments for the dependents left behind.Life insurance
The Law and MPPI
You do not have to get MPPI by law, it is just a relatively easy sell for lenders, as they can use the threat of repossession to scare potential customers into buying into the schemes. However, repossession can be a very real danger, so getting MPPI isn't necessarily a bad investment.
The Benefits of MPPI
Nothing is certain in today's economy and things may still take you by surprise. Woolworth's completely shut down and that was a huge retailer that seemed indestructible. MPPI can give you peace of mind, knowing that you are not going to be kicked out of your own home, at least for the set term of coverage.
The key is to shop around and find the best deal for your situation, and don't panic buy into the first deal you're offered. Lenders may well offer you MPPI with your mortgage but, as they already have you as a customer, could charge highly, presuming you won't look elsewhere.
The Drawbacks of MPPI
At the end of the day, only you can make the choice whether to buy into an MPPI scheme or not. You should consider your position and your potential position if things go badly. For example, if you are made redundant, would you get a decent redundancy payout? If you will get one that is large enough to cover your mortgage payments for a year then getting MPPI may not be worth it if you could get back into work within that time.
Similarly, MPPI may not be worth it if you are rendered unable to work due to illness if you have enough savings to see you through a period of no work, or if your employer has a decent sick pay deal where they pay out despite you not working. Each case is individual.
Another reason MPPI may not be for you is if you are already covered. If you have life insurance that will cover your salary in the event of being rendered unable to work through sickness, then getting MPPI will be pointless, and just be an unnecessary monthly payout.
Shopping for an MPPI Deal
Of course, it is all well and good to say you need to shop around, but what should you be looking for? Each deal is individual and so will have individual differences. One of the biggest things you need to consider is what it will pay out and when. Most MPPIs only cover for a limited period. You should know how much the insurer will be willing to pay out and whether they have any upper caps on the monthly rate, especially if you have an expensive mortgage.
How soon they will payout after you are rendered without an income is a big consideration too. Normally, policies pay out a while after the insured is rendered unable to work or unemployed, usually about 30 days plus. This is so that they can avoid paying at all if you manage to get back into work almost immediately.
However, these policies usually then pay back to day one, meaning that you will get covered for the entire time you are not working, but just not straight away. This may be an important consideration in case you need to make a payment before the payout, and you have little to no savings.
It is usually a good idea with all types of insurance and mortgages to keep an eye on the market in case a viable, cheaper deal comes on offer. However, switching may be risky with MPPIs as immediate claims may be ruled out by some insurers, and they may wriggle out of any payouts if they can argue that you may have known there was a chance of your redundancy before switching. You will just have to read the small print and make sure everything will work in your favour if the worst happens.
MPPI or Government Protection
There is governmental help to deal with imminent repossession or an inability to pay off mortgages that some people can fall back on, specifically those who are already receiving benefits off the government. However these can have limited payouts as they are non-profit schemes, plus the government help on offer is likely to change. A good MPPI deal is set in stone (as long as you keep up payments) and so will not take you by surprise, and probably pay out more than the government schemes can.
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