Mortgage protection insurance

Mortgage protection insurance, also known as mortgage payment protection insurance (MPPI), is a type of short-term income protection.

It can cover your monthly mortgage repayments if you lose your job through no fault of your own or you’re unable to work because of a serious injury or illness.

If you want the policy to cover more than just your mortgage repayments, some providers give you the option to add an extra 25% to cover other household expenses too. Some policies will also cover you if you need to leave work to become a carer for an immediate family member.

Joint mortgage repayment insurance is also available, which can help couples protect their monthly payments if either partner is unable to work.

MPPI is available to self-employed and contract workers as well as employed people. However, there may be some additional exclusions to watch out for.

In return for paying a monthly premium, mortgage insurance offers a regular income if you’re unable to work for a reason covered by your policy. Policies typically have a benefit period (how long the payouts last) of between six and 24 months.

The maximum monthly benefit you can receive is normally capped. This is usually either:

1. A set limit per month, often around £1,500 to £2,000

2. A percentage of your gross monthly income, typically around 65-75%.

You’ll usually get whichever is the lesser amount.

If your claim is successful, you’ll need to wait 30 to 180 days for a payout. This is known as the ‘deferred period’. The reason for this is to stop people from taking out insurance when they know they’re about to be made redundant.

However, some providers offer ‘back to day one’ cover. This means that at the end of the deferred period, your payments will be backdated to the date you made the claim.

Mortgage protection insurance costs are based on your personal circumstances, including:

• Your age – the older you are, the more likely you are to claim because of illness, so your premiums are likely to be higher.

• Your job – if you’re a manual labourer, for example, you’re more at risk of serious injury than someone with a desk-based job.

• Size of mortgage repayments – larger mortgages need more cover, which pushes up premiums.

• How much cover you need – you’ll pay more if you choose to cover an extra 25% to account for bills and other expenses.

A mortgage protection insurance calculator can help you understand how financially prepared you are if you’re not able to work. Try the ABI’s Protection Calculator.

To get a mortgage protection insurance quote, you’ll need to give:

• Personal details, such as your name, address and date of birth

• Annual income

• Monthly mortgage payments

• Maximum amount of time you can afford to wait before receiving the benefit

• Employment details.