Although mortgage payment protection insurance, or MPPI, is not required by law, peace of mind that missed mortgage payments due to accident, sickness or unemployment cause many to automatically obtain this coverage. Because of this, mortgage payment protection is easy to sell and sadly leads to homeowners being overcharged or even being lumbered with a policy with insufficient or superfluous cover.
Getting Cheap Mortgage Payment Protection by Calculating Risk
The key is finding out if vital coverage is in place and to dispense with needless coverage. Risk factor can be calculated by the following:
- The size of the mortgage in relation to the household income
- Whether the place of employment has sick coverage and how much
- The size of the redundancy package
- What state benefits are available if the financial situation changed
- Whether the customer is self-employed
The customer may consider making a claim if mortgage protection has been missold.
A BBC News report “Crackdown on Misselling of PPI” describes how the Financial Ombudsman has been inundated with numerous complaints after borrowers had been missold payment protection on personal loans that had useless or superfluous coverage. By checking the small print, the customer may establish the usefulness of the coverage.
How Much Mortgage Insurance Coverage is Necessary?
The MPPI is often designed to cover mortgage payments for up to a year. This equates to twelve times the mortgage repayments. Sufficient savings could provide an alternative way of covering for this period particularly if the mortgage payments are small in proportion to the household income during employment. The homeowner may save thousands of pounds worth of premium payments that may go on for years without a claim.
Redundancy Insurance Coverage
The question of how much mortgage protection the homeowner needs could be answered when checking out what state benefits are available.
Long-term employment at the same place often pays out large sums for redundancy. In this case, the homeowner may beg the question of whether mortgage protection is really necessary for redundancy. The Department for Innovation and Business Skills has an online calculator that helps the homeowner work out how much statutory redundancy entitlement would be due if redundancy occurred.
Loan Protection Versus State Benefits
In some cases, a mortgage protection insurance payout could affect the homeowner’s entitlement to certain benefits. It is advisable to check how such a payout would affect income support and to work out whether paying for such a payout is worth it. Continuing to sign on even when monetary benefits are not forthcoming, means that national insurance contributions will continue to be paid into the state pension.
Is Critical Illness Coverage Necessary?
Checking out what the company of employment would pay out in the event of injury or sickness could make this coverage on house insurance unnecessary. The self-employed must take extra care however, to ensure that adequate coverage is in place and to seek proper financial advice.
Is Mortgage Coverage Necessary?
The customer may question the necessity of whether payment protection on a mortgage is really necessary when calculating the risk factor. A place of employment, which offers a good redundancy package and sufficient sick benefits could make this unnecessary. Furthermore, if the household income is large in proportion to the mortgage payments, the risk factor may be sufficiently low to dispense with it altogether.