The Facts Explained 

What is Mortgage Payment Protection Insurance?

Mortgage Payment Protection Insurance promises to make repayments on your mortgage (and other related expenditures like building's insurance), in the event of accident, sickness or unemployment, which is why it's also often called ASU cover.

Will the State help?

State help to cover mortgage repayments is limited, especially for anyone who took out their current mortgage after 1995.  Then it only kicks in after nine months and covers the interest cost on the first £100,000, but not any debts consolidated into the mortgage (although those with savings over £8,000 or a partner working more than 16 hours a week are excluded).  MPPI is designed to fill the gap, thus most policies only pay out for 12 months.

How important is MPPI?

There is no legal requirement to have MPPI, yet it's a profitable policy for lenders and easy to sell; after all when ‘peace of mind' and ‘lose your home' are in the same sentence, people get emotional, falling for the sales patter without checking policies' suitability.  This leaves many at best, expensively over-covered, and at worst saddled with a policy useless to them.

Would you get redundancy?

In the event of unemployment, if you'd get a big payout for long service, the unemployment element of the cover is often unnecessary.

Do you get decent sick pay?

If an accident or sickness stopped you working, what would your firm do?  Many public sector workers get a substantial proportion of their salary. If you've got good sick pay terms, the accident and sickness element is probably unnecessary.

Are you self-employed?  

Most but not all policies now cover the self employed, though only if the business ceases to trade due to circumstances beyond your control - yet always check.

Got sufficient savings?  

MPPI only lasts a year, so the maximum payout is twelve times your repayments.  

When will it pay out? 

Policies normally start paying out 30 or 60 days after the problem occurs, yet most are now ‘back to day one' which means they backdate the benefit so you'll be paid out for the earlier period too.

Policy Periods are limited.  

They only pay out for a limited term, usually 12 months.

There's a maximum payout level.  

Many policies limit the monthly payments covered, often £1,500 or £2,000 per month.

Further information on Mortgage Payment Protection Insurance

What would happen to you if you were made redundant or suffered a serious illness or accident which prevented you from working for some time? How would your finances bear up under the strain? What is more important, could you continue to make your mortgage repayments or would your home be at risk?

House prices are currently at a high and for those who have brought a house in the last few years that can mean a corresponding high mortgage. A high mortgage will have high monthly mortgage repayments and can easily eat away any savings you have. Few who have recently purchased a house will have any large savings in hand as it is normal practice to use your savings to increase your deposit on the house and thereby reduce your mortgage borrowing.

Some choose to rely on state benefits to provide them with a safetynet in the event of the worst happening but that safetynet may not always be as reliable as you might think. Your partner may be in full time work or you may have a level of savings which stops the state safetynet from fully applying.

Even if you qualify for state assistance it will usually only assist with the interest part of any mortgage payment and then be limited to mortgages up to £100,000. Also state assistance with mortgage repayments will not be available for the first nine months for those mortgages taken out after October 1995.

Mortgage Payment Protection Insurance (MPPI) is designed to provide a level of assistance with mortgage and associated repayments if the insured person is unable to work through illness, injury of involuntary unemployment.

The monthly benefit payments under the Mortgage Payment Protection Insurance policy are paid out up to a maximum period of benefit which is usually either 12 months or 24 months.

The Mortgage Payment Protection Insurance policies usually charge a fixed premium rate based of the amount of monthly benefit purchased. There is no loading for smokers, age, vocation or physical history but please note that it is normal to exclude Mortgage Payment Protection Insurance cover for medical conditions which pre-exist the start of the Mortgage Payment Protection Insurance cover.

The majority of Mortgage Payment Protection Insurance covers will protect both interest and capital monthly repayments of the mortgage and under some Mortgage Payment Protection Insurance policies the benefit amount can include associated costs such as endowment premiums and house hold insurance premiums.

The most competitive Mortgage Payment Protection Insurance premiums start at just under £4 per £100 of monthly benefit although please note that costs do vary within the market. If you choose a supplier who provides a product based on a competitive premium rate then you may well be able to protect your mortgage repayment for a low monthly premium which will not place your finances under strain.

During the first few years of a mortgage when monthly outgoings are stretched you may well be advised to shop around to find a competitively priced Mortgage Payment Protection Insurance cover. Most mortgage lenders will offer Mortgage Payment Protection Insurance cover but it may not always be as competitively priced as similar cover offered by a specialized Mortgage Payment Protection Insurance broker. So do shop around and compare what is available in the market so that you know you are getting a good deal.

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