From Adviser Guide: Mortgage Payment Protection Insurance
Q: What is mortgage payment protection insurance?
MPPI provides financial protection for home loans for those who can’t afford full income protection.
For clients who can’t afford full income protection, mortgage payment protection insurance provides financial protection for home loans and related costs in the event that they are unable to work, usually due to either accident, sickness and/or involuntary unemployment.
Protection can differ depending upon the level of cover selected and the benefits selected are limited to the customer’s monthly mortgage repayment and, often, up to a further 25% to contribute toward other household bills.
Following the issues surrounding the mis-selling of payment protection, many lenders no longer have a product available, a far cry from the days when some offered it with initially free periods as a standard.
David Hollingworth, associate director at London & Country Mortgages, explains that MPPI should fit into the suite of protection options available to a borrower.
“It could offer an option for some although it really needs to be part of a broader advice process to cover protection of the mortgage if income were to be lost, as it is not available to everyone and does not cover all eventualities. It should also be remembered that it is only designed to protect residential mortgages.”
“As part of the overall protection conversation it is important to open the customer’s eyes to the fact that the inability to work and loss of income would pose a real problem, especially as so few have any real reserves to draw upon,” adds Mr Hollingworth.
“Often there is a belief that the state will provide so make sure that you can give them the facts on the limited help that there would be.”
But Dennis Haggerty, marketing manager at iprotectinsurance.co.uk, stresses it is crucial to remember that MPPI is not an income protection policy and does not offer financial protection against long term illness.
As with all mortgage protection policies, clients do not have to take a MPPI policy. There is no requirement from mortgage lenders at all for borrowers to have MPPI, so the decision to buy should be based on client need.
The target market for this product are those who can’t afford full income protection. According to Mr Haggerty, the principle benefit that purchasers focus upon is the ability of the policy to respond if they are made redundant.
“However there is usually an initial exclusion period for any claim for unemployment of between 60 and 120 days. Critically this means that even an announcement by their employer of job losses during this time could lead to any resultant claim for unemployment benefits being declined.”