From Adviser Guide: Mortgage Payment Protection Insurance
Q: What are the problems with MPPI?
MPPI can be a one-size-fits-all product and is not a long-term solution, but there are alternatives available.
MPPI is by no means perfect. Above all, it can be a one-size-fits-all product where all customers pay the same premium and no medical information or underwriting is done upfront, so policyholders could find they are not eligible to make the claims they might have expected.
Moreover, MPPI does not offer a long-term solution, as the policies usually cover only 12-24 months in total.
Martin Sincup, product manager at LV=, adds that under some MPPI contracts the policies and premiums are not guaranteed and the provider can cancel the policy at just 30 days notice to leaving the customer without cover, or indeed can increase the premiums paid by the customer.
However, the usual notice period is two months for any change in the policy. Equally the policyholder can decide they no longer need the cover and can simply stop paying the premium and suffer no financial penalty for doing so.
Some MPPI contracts do not cover an injury or ‘disability’ that leaves you unable to do your own job.
“MPPI can be based on activities of daily living (ADLs),” explains Mr Sincup, “which is harder to claim on as it means you have to be unable to do a number of set tasks on a list, rather than not being able to do your own job.”
Dennis Haggerty, marketing manager at iprotectinsurance.co.uk, counters this. “The regular policy wording widely used by the market leading providers only require claimants to produce regular evidence provided by their doctor that they are unable to undertake their usual duties – ie follow their usual occupation – for medical reason. ADL’s can be an issue with LTIP insurance, I am not aware of an MPPI with this caveat.”
Mr Haggerty acknowledges that MPPI can be a one size fits all product with a flat rate of premium for all applicants, but that market leaders do offer this cover with age banded premiums.
“It should be absolutely clear to all applicants that they are able to claim for any new medical condition. Market leaders make this very clear to all applicants and ensure prospective policyholders make an active commitment in terms of answering questions to this effect.
“The application process used by i:protect and British Insurance for example go to exceptional lengths to ensure customer are aware of this when they sign up for a new policy.”