Halve Your Mortgage Payment Protection Costs Article Discussion Area

Thought it maybe useful for people who read the article to understand a little bit more about the differences between Mortgage Payment Protection Insurance (otherwise known as Accident Sickness and Unemployment cover) and PHI (Permanent Health Insurance)

Mortgage Payment Protection Insurance

Will protect your mortgage payments and associated premiums such as buildings and contents/life assurance, and often add an extra 25% of cover if selected in the following eventualities

1. INVOLUNTARY redundancy**
2. Sickness/Accident
3. A combination of the two.

**You have to declare that you are not under notice of redundancy on application, and also that you have no reason to suspect you will be made redundant.

You may select a deferred period (a period before the benefit will pay out) to match your employers sickness benefits (most policies will pay out after 30 days on a back to day one basis, but you should check this as there are those which are longer).

The policy deferred period will also apply to redundancy, so if you find employment in the deferred period you will not be able to claim. Please consider here the amount you will receive in the event of redundancy (for most people, very little, 1 weeks pay after 2 years service and it escalates slowly after that).

Most policies pay out for one year, there are some that will pay out for two years and a recent edition to the MPPI family is a policy which will cover over a much longer term. This is a hybrid product and outwith the scope of the article, it is not available to purchase directly and most advisors will know of this.

Commission to advisors on these policies is usually between 25-27% of the annual premium, which, if your premium is £15 a month, is not a great deal.


Remember to check your policy every time you remortgage or move house as the policy may not pay out enough to cover the new mortgage payments, this includes if your mortgage reverts from a discounted/fixed period to a variable rate.

Mortgage Payment Protection single premiums, i.e. a lump sum added to your mortgage to “protect” it is currently under Scrutiny by the Financial Services Authority – I don’t think there are any companies left that try to sell it, but be on your guard here. You should be able to get more information from the FSA website http://www.fsa.gov.uk

Permanent Health Insurance

This is a much more expensive option and covers sickness/disability only. It will pay out until normal retirement age if you never recover and are unable to return to work in any capacity. Rehabilitation therapy and various other features are part of this complex plan, as are periodical medical assessments in the event of a claim. The maximum amount of cover is 75% of earnings, but some providers will do 60% minus state benefits. This type of policy is medically undewritten so if you smoke of have existing conditions these could well be excluded or rated (premium increase to reflect the additional risk). There is a huge difference in the levels of cover provided by these policies, so if you are arranging your own please bear this in mind.

This policy can also be written back to day one, or with a deferred period to coincide with the cease of your employers sickness benefits, commonly 4, 8, 12, 26 or 52 weeks. The longer the deferred period the cheaper the cost of the policy.

In some instances it could be beneficial to take a 12 month mortgage payment protection policy and a 52 week deferred permanent health insurance policy to ensure continuity of income in the event of a serious long term illness such as cancer or stroke.

Commission on these policies varies widely but is not disproportionate to the amount of financial advice that is required to make sure you have the correct cover.

IMHO Neither of the above types of policies should ever be bought or surrendered without qualified professional advice. This area is much more complex and significant than just buying the cheapest policy and hoping it pays out, and I can’t convey strongly enough you should consider your needs and level of cover in depth before you relinquish any of your existing cover.

Remember - If in doubt, shout.

Its something I've done , however wise to ensure each company are advised of the other plan.

Remember most MPPI plans are effectively underwritten at claim , unlike PHI (IP) , plus MPPI usually have more standard exclusions

---
This method generally works out cheaper if the rating ( age/ occupation/gender/smoking) works against you on standard PHI

Be careful when looking at PHI ... the online quote systems aren't really up to giving a like 4 like comparison on PHI , and different terms apply to various elementsincluding :- max benefits , own/any occupation , reviewable/ guaranteed, and the way indexation is costed.

MPPI can usually cover unemployment and/or disability, and by its name is for mortgage cover ( most providers have limits as you mention- X% of mortgage and X% of income ) short term IP is very similiar - usually based on just x% of income.... latter is usually (not always) a little more expensive. These types of cover are "general insurance" - claim normally last for max 12 or 24 m ...normally policy renewed monthly / annually ... but in fact most plans allow insurer to cancel with a short notice period.... therefore they are not permanent

Longer Term Income Protection ( often still referred to as PHI- the P stands for permanent, in that- all things being equal the insurercan not cancel before end of term) does not normally have unemployment cover ( although some comapnies will no sell it with this option- although really its a separate plan bolted on, as the 12/24 m rules usually apply)

I note that MPPI will literally just cover your mortgage payment - could you add things like service charges and insurances to MPPI - or is that why some policies give you the option to add 25% to the benefit?

I'm curious. the mtg payment protection insurance I presume pays directly to the lender.

Well, what happens in the case where you have a combined "ONE" (mtg/savings/loan) account. There may well have been an original conrtact to pay a certain amount every month to pay it all off in XX years, but the whole essence of this account is you can pay whatever you like whenever you like providing you do not go over you ceiling credit set.
Would I be right in thinking you cannot take out mtg protection for this and you will need income protection for cover ?