Mortgage payment protection insurance

When you borrow money, you are committing yourself to pay back the loan over a set period, without the benefit of knowing what is going to happen to you during that time. You have no idea whether your circumstances may change to the extent that you are no longer able to make the loan repayments.

An MPPI (mortgage payment protection insurance) policy pays your mortgage for you if you become unable to work for an extended period of time, as a result of redundancy, accident, sickness or disability. There are also other payment protection policies that can be obtained to cover credit card or loan repayments. If there is a reasonable chance you will find yourself out of work in the future, then this sort of policy can provide you with valuable financial assistance.

An MPPI policy should provide enough income to cover all your monthly mortgage expenses. If you have a repayment mortgage, this should be your capital and interest repayment and if you have an interest-only mortgage , the MPPI should cover your interest payment as well as your normal monthly contribution to the investment vehicle that will repay your loan.

Payment schemes

Most non-mortgage PPI products are taken out for a length of time that corresponds to the life of the loan it is protecting. Some people cover themselves for slightly less than the loan period, in the assumption that they will somehow be able to make the payments for a short time, even if they lose their job. Only do this if you are absolutely sure that you will be able to cover your payments. Mortgage PPI is usually taken out for anything from one to five years at which point you can reassess and decide whether to renew the policy.

There is usually a deferral period - a length of time after you are unable to work or make the claim before you can start to receive insurance payouts. Typically this ranges from 30 to 60 days, though for non-mortgage related products, the deferral period can be as long as 90 or even 120 days.