Protection insurance explained Mortgage payment protection
What is mortgage payment protection insurance (MPPI)?
MPPI is designed to cover your mortage payments if you're unable to work due to accident, sickness or unemployment. In exchange for a monthly premium, MPPI pays you a set amount each month, usually for a period of 12 or 24 months.
As it only pays out for a limited period, it may not be the best form of mortgage protection for you. See alternatives to mortgage insurance for information on other options. Most people would be better off considering income protection instead.
Mortgage insurance policy options
When you take out an MPPI policy, you choose how much you would want it to pay out each month. Some policies let you also cover other monthly bills as well as your mortgage.
Most MPPI providers let you have a maximum benefit of between £1,500 and £3,000.You may only be able to get up to, say, 75% of your gross monthly salary though, or up to 150% of your monthly mortgage payment. In addition, some mortgage protection policies don't let you take the policy with you if you switch mortgage.
Problems with mortgage payment protection insurance
The biggest problem with MPPI is the way it is underwritten. Income protection is fully medically underwritten when you take out the policy, meaning you'll know from the outset what you are and aren't covered for.
In contrast, MPPI usually does the full medical checks at the point you put in a claim - this means, for example, that you can't be certain any pre-existing illness will be covered until the moment you put in a claim.
MPPI waiting periods
The waiting period is how long you have to wait once you've put in a claim before the policy benefit starts to be paid out.
Some providers call this the 'excess period' or 'deferral period'. It can range from 30 days to 180 days. For example, if you stopped work on 1 February and the waiting period was 30 days, the policy would start paying out from 3 March. Some policies, known as 'back-to-day-one' policies, don’t have a waiting period.
In general, the longer the waiting period you choose, the cheaper the policy. If your employer pays you sick pay, you may want to take out a policy with a waiting period that ends when these benefits end.
Need mortgage advice?
We believe you should seek independent mortgage advice before taking out a mortgage. The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at every mortgage from every available lender.
Which? Limited (registered in England and Wales number 00677665) is an Introducer Appointed Representative of Which? Financial Services Limited (registered in England and Wales number 07239342). Which? Financial Services Limited is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited. Registered office: 2 Marylebone Road, London NW1 4DF.