According to the most recent data released by Finance UK, approximately 4,000 homes a year are repossessed due to non-payment of mortgages and over 77,000 more homeowners are in arrears. Not being able to pay their mortgage and losing their home is probably one of the biggest fears homeowners face, especially if they find themselves facing redundancy, falling ill or recovering from an accident that has left them unable to work.
If this is something you worry about, there are ways to protect yourself and your home.
Mortgage Payment Protection Insurance (MMPI)
Mortgage Payment Protection Insurance, or MMPI, allows you to continue making mortgage repayments even if you aren’t receiving a regular income. There are three types of MMPI:
- Unemployment – which covers your repayments if you made redundant, are registered for unemployment benefits and actively looking for work.
- Accident and Sickness – which covers your repayments if you’re can’t work due to an accident or long-term illness as long as you have a doctor’s note.
- Accident, Sickness and Unemployment – which covers you for redundancy, accidents and long-term illnesses.
Taking out combined accident, sickness and unemployment insurance will be more expensive than taking out insurance that only covers unemployment or accident and illness. Your premiums will also depend on the value of your mortgage (the more you owe, the higher your premiums will be), your age and any pre-existing conditions.
Each insurance company will have different eligibility criteria for MMPI policies. Most companies will accept anyone who is in guaranteed permanent employment but will then categorise people based on the type of job they do so it’s a good idea to shop around when looking for a policy.
Many insurers will now cover people who are self-employed. However, there will likely be restrictions on who is eligible, e.g. those on fixed-term contracts may not be able to take out unemployment cover as they know there is a set end date to the work they are doing.
Making a Claim
Before you can claim MMPI, you will need to have been off work for a set number of days. This will be outlined in your policy but could be anywhere up from 30 to 180 days.
The longer you have to wait to claim, the lower your premiums will be so, if you have savings you can use in the interim or your employer offers sickness benefits or a good redundancy package, you may be better off taking out a policy with a longer waiting period.
MMPI payments are normally made for a pre-agreed amount each month and a period of no more than two years. You can choose payments based on your mortgage or your base salary; insurers will generally pay 50% of your monthly salary. You can also ask for bills to be covered by your policy. These are calculated on a percentage of your mortgage repayments rather than your bills themselves.
If you have high levels of unsecured debts, you may want to consider taking out Payment Protection Insurance (PPI) or other types of insurance that cover you for longer.
Alternatives to MMPI
MMPI isn’t for everyone. Based on the type and level of debt you have, your age, pre-existing medical conditions, the industry you work in and the job you do, other forms of insurance may be a better option for you:
- Income Protection pays out a percentage of your salary if you aren’t able to work because of ill health or an accident. Many policies pay out for longer than MMPI, possibly for as long as it takes for you to go back to work or reach retirement age.
- Critical Illness insurance covers you if you develop a serious illness that is life-limiting, e.g. cancer or Dementia, or you suffer from a stroke or heart attack. It is paid out as a lump sum rather than regular payments.
Income protection work particularly well for people will long-term health conditions, though a medical assessment will be required before a policy can be issued; this will determine what your policy will then cover and not cover.
As Critical Illness cover is paid out as a lump sum it’s a good idea to sit down and work out how much you’ll need to pay off your mortgage and allow your family to live comfortably if you are no longer able to work.
- Life Insurance won’t cover mortgage payments but will provide your family with a lump sum in the event of your death. As such, it’s worth considering as it could allow your family to pay off the mortgage.
As with Critical Illness cover, make sure your policy pays out enough to pay off your mortgage, possibly with money left over that allows your family to maintain their lifestyle after your death.
Finally, it’s worth looking at your employee benefits. Many companies offer staff salary protection if they are off sick for a certain period or life insurance that pays out a lump sum in the event they die while still employed.
As with any insurance policy, make sure you understand the terms and conditions of any salary protection or life insurance schemes offered by your employer and how and when they pay out.