A Confused.com Guide to Mortgage Payment Protection Insurance

• Guides
• Published: 08 Jul 2009 in Money and Mortgages

Do you need MPPI as part of your insurance cover? 

Mortgage Payment Protection Insurance (MPPI) covers your mortgage interest payments if you’re unable to work due to an accident or illness, or if you lose your job. It can also reduce the risk of your home being repossessed.

Confused.com finds out how much it costs and whether MPPI could be right for you.

What exactly does it cover?

MPPI policies cover interest payments on your mortgage for a set period of time, typically between 12 and 24 months. They don’t cover capital repayments.

Many policies have an exclusion period, generally of around 60 days after you first take out the policy. During this time you can’t claim for unemployment, although you’re still covered for accident or sickness. There is usually a waiting period, again of around 60 days - although in some cases it can be less - before any claims are paid. So, even if you have MPPI, you still need enough cash set aside to cover your mortgage repayments for two months.

How much does it cost?

On average MPPI costs £4.66* for every £100 of monthly mortgage repayments covered. So insuring a monthly repayment of around £850 would cost around £40 a month. However, there are huge variations - the cheapest policies cost £2.04 per £100 of cover; the most expensive are £7.79.

Where can I buy it?

If you’re taking out a new mortgage, chances are you’ll be offered MPPI by your lender. But, as is the case with all things financial, it pays to shop around for the best deal. MPPI is widely available from most insurers, insurance brokers and banks.

Should I take it out?

If you’d struggle to pay your mortgage without any income, then MPPI would suit you. However, you may have other insurance cover in place, which would enable you to keep up with repayments, such as income protection or critical illness cover. See Confused.com’s What is Critical Illness Insurance.

Alternatively, you may have substantial savings or investments you could fall back on, or your employer might provide some sickness or accident cover.

It’s important to be realistic about your ability to pay your mortgage if you find yourself out of work for a sustained period of time. Check to see if you’re eligible to claim with MPPI. Some policies exclude people who are self-employed or on a fixed-term contract; others exclude those who have certain pre-existing medical conditions.

Is there any other help available?

If you’re receiving certain benefits, including Jobseeker’s Allowance, you may qualify for Support for Mortgage Interest. Under this scheme, the Government will pay interest on the first £200,000 of your mortgage, but the cover doesn’t kick in for 13 weeks and exclusions do apply.

You may also be able to take advantage of the Homeowner Mortgage Support Scheme. This enables people who have lost some, or all of their income, to defer up to 70% of their mortgage interest payments for up to two-years. However, you will only qualify for the scheme if there’s a realistic possibility that you’ll be back on your feet financially within two years. See Confused.com’s Guide to the Homeowners Mortgage Support Scheme.

* This figure is from market analyst Defaqto and is based on MPPI with accident, sickness and unemployment cover for a 35-year-old, with 30 days excess. Premiums correct at time of writing.