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Considering Mortgage Payment Protection Insurance for repaying Mortgage

As economic times get tougher and more and more people are finding it difficult to repay their mortgage, one important fallback to consider is Mortgage Payment Protection Insurance (MPPI).

This form of insurance promises to make repayments on your mortgage (and other related expenditures such as buildings insurance), in the event of accident, sickness or unemployment. It is also sometimes referred to as `ASU` insurance.

MPPI is a profitable policy for lenders and easy to sell since it offers protection against potentially losing your home and many customers fail to check the policies` suitability or exclusions. As with all types of home insurance, there are many options available and a way to reduce the costs can be to opt for either unemployment or accident and sickness cover.

Your personal circumstances should drive whether you need to look at MPPI cover. For example, would you get a large payout if you were made redundant due to long service. If so, the redundancy cover may not be needed. Likewise, if your employer provides lengthy periods of sick pay cover, then the accident or sickness element may not be necessary.

Most MPPI`s will only pay a maximum of 12 monthly payments so if you have sufficient savings, there may be no benefit in taking out a policy. An alternative may be to look at a permanent health insurance policy instead of a MPPI. It will probably be more expensive, but will pay out a proportion of your salary and for a longer period in the event of a serious illness.

So which type of MPPI might be best for you?

Most MPPI`s do not depend upon age, smoking or other conditions that are likely to increase the likelihood of a claim. But you must check the detail to make sure what coverage you are getting. One of the common areas left unchecked is the maximum amount paid out per month. This could be limited to, say, £1,500 per month which may seem adequate now, but what if interest rates continue to rise or when that fixed interest period comes to an end?

All policies will carry a qualifying period before cover becomes effective.
This can be as short as three months, or as long as six months. In any event, they will all carry exclusions for events that were reasonably foreseeable when the policy was taken out. So, for example, if you suspect that you have a serious illness and have not declared it at the outset, there is a strong likelihood that the policy will not pay out.

One of the safest ways to source a MPPI is through an independent mortgage broker of a registered Independent Financial Advisor. Whilst most MPPI is usually bought with the mortgage, there is an increasing number of independent providers offering value products directly.

There are potentially big savings to be made by looking at a switch from an expensive bank policy to a cheaper provider - between £200 and £300 per year is possible on a typical £800 per month mortgage payment. Reducing your Home insurance costs without cutting the cover is just one way to make your money go further in these tough times.