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Mortgage payment protection – needless or necessary?

Model homes in grass

Would you be able to keep up with your mortgage payments if you lost your job or fell ill? If not, you may be thinking about mortgage payment protection insurance – but is it a financial lifeline or a waste of money?

A lot of mortgage holders are in a very vulnerable position at the moment.

This is partly due to the unusually low base rate – still sitting at just 0.5%. At the moment, the variable rates linked to it are also very low.

However, when the base rate rises – and sooner or later, it will – many variable rate mortgage holders are going to be in trouble.

For anyone already operating on a tight budget, a rise of just 0.5-1% (and the subsequent rise in their mortgage interest rate) could push them over the financial edge.

Is it worth protecting yourself?

Another worry mortgage holders face is related to the depressed and unstable employment situation – unemployment is set to rise even further in 2012.

If you were made unemployed this year – or were suddenly unable to work due to sickness – would you still be able to pay your mortgage? If the answer is no, it’s worth considering taking out some sort of protection product to provide a cushion if the worst does happen.

However, for many people, the word ‘protection’ now sets alarm bells ringing. The PPI mis-selling scandal has made many people inherently suspicious of other protection products.

In addition, research suggests that people are cutting back on insurance products, rather than buying more of them. If you’re on a tight budget, you’re probably not going to want to fork out yet another monthly premium.

What mortgage protection should you get?

However, if you do want protection, there are two main products to think about. Mortgage payment protection insurance (MPPI) is meant to cover your mortgage costs if you’re made redundant, or are unable to work due to an accident or sickness.

For a monthly premium, MPPI will pay you a set amount each month, usually for a period of no more than one or two years. Most policies also let you cover other monthly bills, like utilities, as well as your mortgage.

And then there’s income protection insurance, which provides a different type of cover and is typically more expensive. It doesn’t cover unemployment, but it will pay around 50% of your salary if you can’t work due to accident or illness.

Unlike most MPPI cover, it pays out until you go back to work, or until you reach retirement. And you can generally spend the amount you receive on whatever you want, making it more flexible than MPPI.

Which? Money’s Martyn Saville has previously written about income protection, and commenter Justin championed its cause:

‘[Income protection] was the first insurance I took out as a young man 20 years ago and I still have the policy now. It gave me peace of mind as I have always worked for an employer who didn’t provide anything more than statutory sick pay, so I knew what trouble I would be in if I fell ill.’

Rip-off or lifeline?

We’re currently investigating the MPPI market, and looking into the alternatives for mortgage holders who are worried about what the future might bring. So we’d love to know what you think.

Have you taken out MPPI or income protection? If so, has it been a financial lifeline, or have you had a bad experience when trying to claim? Would you rate one over the other, or do you think they’re both a waste of money?

Do you have protection for your mortgage?

No, I don't believe it's necessary (54%, 38 Votes)

Yes, I have mortgage payment protection insurance (20%, 14 Votes)

No, but I think I should (15%, 11 Votes)

Yes, I have income protection insurance (11%, 8 Votes)

Total Voters: 71

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It’s just like any other insurance, if the insurance company can find a way to not payout they won’t.

Surely anyone taking it out now will be told when they ever need to collect the whole country is doing badly you must have known at the back of your mind it would happen to you else why take out the insurance. So no payout

So not worth it

Have had insurance from the start, needed to call on it once.

The biggest problem is that you need to have the letter from Job Centre+ to be able to claim and they seem to take their time!

I have been unemloyed off and on since Nov 2009. My MPPI has paid out after 30 days for each period of unemployment and will pay out for a total of 12 months, by which time I will be retired and able to pay off my mortgage. I am currently on Pension Credit as I do not qualify for Job seekers( Contribution based) as I have been out of work for part of the last 2 years, according to Jobcentre plus. Insurance still requires that I am actively seeking employment so I still have to provide evidence of jobsearch, but as Jobcentre Plus no longer send out the letters this is no more onerous. MPPI has been an absolute lifeline for me as I took out my mortgage fairly late in life and do not have enough savings to cover the mortgage payments.

Marco says:
21 January 2012

Taking out this insurance was one of the best decisions I ever made. I never thought I would be made redundant being in a senior position and having served so many years, and despite others saying there was no need, I did and 6 years later I was made redundant with the credit crunch and the company changing direction. The insurance proved a lifeline, and not just the once, I was made redundant a second time and so again the insurance provided the lifeline we needed. It was worth the cost and the peace of mind. Don’t be under any illusion though, the insurance company try to make life difficult but if you have a case then after proving everything, you will get a monthly payment to help you.

susanna says:
9 February 2012

I have MPP with critical illness. But i am not sure if i need it or is it worth having it.
cant wait to hear the outcome of the investigating about MPPI market

lynda says:
27 February 2012

I have MPP and feel it is not worth having . Told it was only way I could get my mortgage , feel I was mislead.

Dobbie says:
20 April 2012

I was told that mortgage protection insurance was mandatory when I took out a mortgage 20 years ago. I was made redundant last year. So was relieved that I had the protection – but the policy wouldn’t pay out for 12 months because the redundancy included payment in lieu of notice. Then, because I started my own business in the meantime, I was deemed to be back in work and therefore didn’t get any pay out. A great disincentive to be proactive in life. I feel like I’ve paid for 20 years – thousands of pounds – into a worthless policy.

greeny says:
12 June 2012

Had mppi for over 20 years during which time i was director of a company for 5 years, asked when renewing mortgage deal at the time if this was needed as it includes redundancy cover and was unsure if as director i could make myself redundant and was told to keep it. Was this misleading? did i need mppi during that period?

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I have paid for unemployment cover for over 6 years and was made redundant in December 2015. I’m still looking for work and the policy has started to pay out but one of the policy conditions is that I must be in receipt of job seekers allowance. after 3 months of signing on, the new rules at the job centre seem to say you must apply for basically any job. this defeats the purpose of the policy which is to protect my income because I am now being forced to apply for jobs that I am far over qualified for and which would not pay enough to pay my mortgage. I feel this condition of the policy is unfair and that I have been mis sold the product. does anyone else have similar or different experiences or advice?

I have a decreasing life insurance policy on my mortgage which in event of death would pay the mortgage off. however, i have just recently found out that i am in fact paying two such policies. The first one was taken out when i bought a house about 15years ago. i then rented for a number of years after selling that property and when i bought a new house about 4 years ago, i took out insurance on that mortgage. i am undecided as to what to do as i feel that i should be able to cancel the first one and dont know who to speak to as realistically i was paying for insurance i didnt need anymore. Can anyone help guide me please?

Martin says:
20 January 2018

I recently learned my role is redundant. I called my insurer and they informed me that the terms are that the cover only begins after my notice period has ended. So even though I am cut loose in March, because my settlement includes 6 months of salary, they would only consider a claim after that. It is almost worthless to me and I don’t really understand why my contract or settlement agreement should dictate when cover begins. Be careful.

I suppose the theory is that while you continue to be paid there is no need for payment protection on your mortgage. This keeps the cost of the insurance down.

I presume the payment start date was in their terms and conditions? Insurance is designed to cover losses, not to put you in a better position than you would otherwise have been. If you don’t become re-employed after 6 months then your insurance will become very welcome.

I had mppi since I started mortgage 13 years ago, I have 1.5 years left on mortgage as had managed to over pay.
I was made redundant last year. had 3 months garden leave before i could sign on, then 60 days before mppi kicked in,
although I have to send lots of info plus be signing on at jobseekers I do get paid from mppi . I do not actually have to be claiming money from jobseekers just signing on needed and be active in job search.( I don’t claim money as manage
to do odd days of freelance, which mppi allows. it has taken a lot of worry away, and may be able to pay off mortgage this year. definitely worth it in the long run..