You have the choice of insuring your mortgage payments so that in case you become unemployed, ill, or disabled and are unable to pay for your monthly mortgage payments, the insurance company will take care of the payments. This way, you won’t default on your loan and risk losing your home. Not all homebuyers opt for mortgage payments insurance to protect their mortgage payments because it is not required by the lender and it is an additional expense. Lenders only require insurance of payments in cases when you are unable to pay a minimum 20% down payment. This type of insurance is called Private Mortgage Insurance (PMI)—it only protects the lender from losses but will not protect you, the borrower, from foreclosures. In this case, mortgage payment protection insurance (MMPI) policy may be more beneficial because it protects both the lender and the borrower.
What to look for when getting MPPI
When choosing an MPPI policy, you have to look at two main factors: when the payments start from the time of the claim and how long the payments last. Most payments from MPPI policies will start 30 to 60 days after the claim. Depending on your savings and your ability to cover the payments in case that you become unemployed or sick, you can opt for a shorter or longer period before the insurance company starts paying. A policy with a longer deferral may be more affordable than one that pays immediately. However, if you find a company that offers the same mortgage payment protection quotes but a longer deferral, then you should go with the one who pays soonest but offers the same rate. The other important factor you should consider is how long the payments last for. Typically, MPPIs cover 6 to 2 months of mortgage payments but some policies can also cover up to 24 months. What you have to think about is how much time you’ll be able to recover and find another job to continue your mortgage payments on your own.
Cost of MPPI
The cost of MPPI will depend on the amount of your monthly mortgage payments. The higher your monthly mortgage payments, the more MPPI you have to pay for. On average, the monthly cost of an MPPI with 12-month coverage is 2.5% of monthly mortgage payments. At this rate, the payments will start 30 days after the claim (which is the minimum deferral period). This means that to protect a £600 monthly mortgage payment, you have to shell out around £15 a month. Cumulatively, MPPI could be rather expensive. Using the previous example, a £15 a month MPPI payment will add up to £180 a year. Over the life of a 20-year mortgage, the MPPI payments add up to £3,600. Thus, before thinking of getting a mortgage payment protection insurance policy, make sure that it will cover what you need so that the extra expense is worth it.
What MPPI covers
There are various insurance brokers that offer different types of MPPI policies. A good policy should have the shortest deferral period as possible, which is one month from the time of the claim. 12 months is already adequate coverage. One year should be enough for you to look for a new and stable job should you get unemployed from your previous job. It is also enough time to recover from an illness or a temporary disability. MPPI will cover mortgage payments in case of involuntary unemployment (when you get fired from your job through no fault of your own), sickness and accident, and in case you get hospitalised.
Who shouldn’t get MPPI
Not all claims will be honored by the MPPI policy. There are certain restrictions that govern payments. For example, if you already knew that you were going to be made redundant and you still got an MPPI, this will nullify your claim. If the company already informed the public that there will be redundancies in the near future and you filed a claim thereafter, then your claim will be invalidated. Also, before any claim can be made, six months of payments should have passed. If you work part-time, work under a short-term contract, or are self-employed, you are not eligible to get an MPPI. You need to have a secure source of income for you to be eligible. You are also excluded in making a claim if you have a pre-existing medical condition, are over the age of 64, or have reached the retirement age since there is a higher risk involved in insuring your payments. There is no need for you to get an MPPI policy if you have enough savings to cover at least one year of your mortgage payments in the possibility that you become unemployed, ill, or temporarily disabled. In cases of permanent disability or death, you might want to look at other types of insurance such as life insurance and mortgages.
Where to buy MPPI
There are mortgage lenders that sell MPPI bundled with the monthly mortgage payments. If your mortgage lenders offer this to you, take note that this is optional and you do not have to pay for it if you do not want to insure your mortgage payments. However, you will still be required to pay some other type of insurance such as home insurance or buildings and contents insurance. If you make a down payment that is below the standard 20%, the lender will also require for you to pay Private Mortgage Insurance as explained in the first paragraph of this article. When getting MPPI, it is best to go with an independent source. Mortgage lenders usually charge as much as five times in premiums compared to the independent providers. Check the terms and conditions of the MPPI policy to see if it provides the coverage that you need. Make sure that you are eligible because it will be a useless expense if in the end you won’t be able to make a claim due to some technicality.
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