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Do I need mortgage payment protection insurance?
Is mortgage payment protection insurance (MPPI) worth having? Taking on a mortgage can be a hefty commitment in itself, so you may feel reluctant to add another regular outgoing to your list.
We take a look at what MPPI is and outline some of its pros and cons, to help you decide whether it’s the right cover for you.
What is MPPI?
As the name suggests, MPPI can cover your monthly mortgage payments for a period of time if you’re unable to work and therefore earn what you need to cover your payments. Usually, the cover kicks in if you’re unable to work because of illness or an accident, or because you find yourself unemployed.
With your insurance policy covering your mortgage payments, this can give you the chance to get better and heal if you’re ill or have been injured, or to look for a new job if you’re unemployed.
It’s vital you don’t fall behind with your mortgage repayments. As a last resort, your lender has the right to repossess your home to get back the money you owe them. If you have MPPI, you don’t have to worry about where your next mortgage repayment will come from if you can’t make it, because you’ll be covered. However, that’s not to say this is the right policy for you.
If you’re worried about how you’ll afford your mortgage if you suddenly lose your income, MPPI could seem like the answer. But there are other options available.
One is income protection (IP) insurance, which can be paid out to you if illness or an injury means you aren’t able to work in the long-term. The cover will replace some of your monthly income and you’ll receive it until you return to work. This means you don’t have to worry about how you’ll pay your essential costs, like your mortgage or utility bills.
However, you should be aware that you will not start receiving payments as soon as you stop working. There is usually a pre-agreed period of up to a year from when you make your claim before you begin to receive payments. If you’re thinking of taking out an IP policy, it’s a good idea to also have a savings pot to cover you for this period.
Another alternative to MPPI is any policy your employer might offer. Some workplaces have cover in place that means if you have to have time off work because of illness they will keep paying your wage. Other employers provide insurance policies that pay out in the event an employee is taken ill or injured while carrying out their job. Check with your employer to see if you are covered.
Critical illness insurance could be an option if your employer doesn’t cover you but you want to be protected if you’re unable to work. This type of policy provides you with a tax-free lump sum. You can use this to pay your mortgage and other essential bills, or to put towards home improvements that make the property more accessible and easier to use.
Keep in mind critical illness cover doesn’t provide you with a pay-out for every illness – check your policy to find out what you’re covered for.
Is it worth it?
As we said at the start of this blog, your mortgage is likely to be your highest priority payment. After all, if you don’t keep up with it, the roof over your head could be at risk. And taking out MPPI or some other form of cover might give you the peace of mind you need that if something goes wrong, your mortgage will be covered.
However, you don’t have to take out an MPPI policy when you sign up to your mortgage. And you’re under no obligation to take out any form of life or illness cover.
Having said that, we would advise having some form of emergency fund in place just in case the worst does happen. It’s a good idea to have the equivalent of around three months’ salary saved to cover you if you have to take a long stint off work while injured or ill, or if you lose your job and need to find a new one.
We hope you’ve found this blog useful and that it’s cleared up any questions you may have had about mortgage payment protection insurance.