Mortgage Payment Protection Insurance (MPPI)
With effect from 5 January 2009, the rules were changed concerning state help with meeting your mortgage payments.
If you are claiming Income Support, income-based Jobseeker's Allowance or income-related Employment and Support Allowance, you may be able to claim support for mortgage interest (smi).
Support for Mortgage Interest benefit can help you pay your mortgage. The main features are:
- 13-week waiting period
- Help with paying mortgage interest, but will not repay any part of the capital
- Only provides help with mortgage interest on first £200,000 of mortgage balance
- Two-year time payment limit for new Jobseeker's Allowance claimants
If you don't wish to rely on the state, you can take out Mortgage Payment Protection Insurance.
If you take out mortgage payment protection insurance, there are 3 options to choose from:
Accident, sickness or redundancy cover:
This will pay out if you are made redundant, or if ill-health prevents you from working.
Accident and sickness cover:
This will pay out if ill-health prevents you from working, but not if you are made redundant.
Redundancy cover:
This will pay out if you are made redundant, but not if ill-health prevents you from working.
What is the best option?
At first sight, the first of the above three options, 'accident. sickness or redundancy' may seem like the best choice, but we don't think so, due to the short (relative to the length of a typical mortgage) benefit payment period.
Mortgage payment protection insurance (MPPI) usually pays a benefit for only a limited duration in the event of a claim, usually only 12, 18 or 24 months. If you have been made redundant for a 'non-health related' reason, the redundancy element of MPPI cover can provide a valuable window during which you can concentrate on looking for work and not have to worry about meeting your monthly mortgage and mortgage-related payments. However, the sickness and accident element of MPPI is of limited value in respect of providing cover against inability to work for reason of ill health due to the limited duration - typically for only 12 months, but sometimes for 18 or 24 months - of the payments in the event of a claim. This does not solve the problem, but merely defers it - what do you do if you are still unable to work for reason of ill-health after the payments from the MPPI policy cease? An ideal solution is to combine redundancy MPPI cover with long-term income protection which can pay an income to you until you retire in the event of ill-health. If you had such cover, and assuming your mortgage term ends before your retirement date, you would be able to meet all of your mortgage payments for the entire term of the mortgage, at which point, you will owe nothing on your mortgage and will own your home outright. |
