There’s no avoiding it – we should all examine our need for mortgage protection cover (MPPI) as it seems no-one will escape the chill of the recession.
If you fall into financial difficulty and can’t pay your mortgage, most lenders will only give you three months grace before commencing repossession proceedings. Although lenders are under pressure to ease off this timetable a little, there are no guarantees.
What is mortgage protection cover?
Mortgage payment protection is a policy which pays out a monthly sum to cover your mortgage if you can’t work due to illness, injury or redundancy. It is also known as accident, sickness and unemployment cover (ASU).
It’s different from many other types of cover, such as income protection, as it will only pay out for a period of 12 months (24 months in some cases) so should only be seen as a financial stop-gap until you get a new job or recover from ill-health.
The government has proposed a scheme to allow families to defer part of their mortgage payments for two years if the main breadwinner has lost their job. However, the Homeowner Mortgage Support Scheme is short on detail – it’s not clear who will qualify. And you will still have to find the money to cover all your other bills and living costs. Once you are back in employment, the interest will have compounded and added to the overall mortgage debt.
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Accident, Sickness and Unemployment Cover typically costs £4.71 a month for every £100 of monthly benefit. This is based on a 36-year-old customer choosing £850 of accident, sickness and unemployment monthly benefit with claims paid after a 30-day deferred period. The cost of this insurance depends on a number of factors, such as your age, where you live and your occupation. As a result, the cost you will pay is based on your own circumstances.
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There are other providers of Short-Term Income Protection and other products designed to protect you against loss of income. For impartial advice about this type of insurance, please visit the website www.moneyadviceservice.org.uk
