Are you paying too much for your Mortgage Payment Protection Insurance?

Author: Sarah Kirby

With recent research* revealing that homeowners are paying a staggering £7 billion more than they need to on mortgage payment protection insurance (MPPI), now would be a good time to check whether you are one of 2.2million people in the UK who are paying too much for theirs.

So what is mortgage payment protection insurance? MPPI is an invaluable insurance policy, protecting your mortgage payments in the event of you being unable to work due to redundancy, having an accident or falling ill. This means you have peace of mind that you will keep a roof over your head while you find another job or convalesce.

Most MPPI policies are sold by mortgage lenders at the time they provide a mortgage. However, very few lenders actually tell people that they can shop around for a cheaper rate – which, according to the research*, could save an average of at least 32% on their monthly premiums, without compromising on the level of cover provided.

Astonishingly, premiums do vary quite widely among mortgage lenders, with the most expensive being a huge £7.70 for every £100 worth of unemployment and disability cover required compared with £3.95 for the same cover being among the cheapest!

For example, by taking out the cheaper policy – but one with equal or even better product features - it means that you will pay only £19.75 to receive a monthly benefit of £500 against the risks of both unemployment and disability. This compares with an average £29.00 per month from the traditional mortgage lenders – a saving of 32%.

If you have a mortgage, you don’t have to have your lender’s mortgage protection cover. Even if you already have MPPI, it is simple to switch to another provider and make significant savings.

So what do you need to look out for when choosing an MPPI policy? First of all, you can choose the amount of cover you need, as well as the type and level of cover

Apart from the premium, the type of cover offered can vary from lender to lender. A benefit that not all providers offer but is extremely valuable is ‘back-to-day-one’ cover. This means that if you have this product feature, you will be paid out back to the day the claim became valid after just 30 days. While this feature is normally only found in policies that are expensive, there are providers who offer this benefit at a nominal cost.

Also, while policies have a 120 days exclusion period, look out for those where there is only a 60 day exclusion period for new or remortgage borrowers, and no exclusion period for those homeowners who are transferring from existing policies.

A good policy will also allow you to purchase up to 25% additional cover for household or other expenses for when you need the money most.

Most homeowners can take out MPPI – it is available to both new and existing mortgage borrowers aged between 18 and 65. With a good policy, there will be no restrictions of occupation, employment status – including self-employed and contract workers – or people who work either on a full or part time basis, provided they have worked for a minimum of 16 hours per week over the past six months. Again, applications should not be discriminated against on the grounds of gender and sexuality.

In a nutshell, mortgage borrowers should not feel obliged to take out their lender’s mortgage protection cover. By spending just a little time shopping around for the best deal from a reputable provider, you can make significant savings.

* Research from Burgesses Ltd. compared the MPPI policies from the top ten UK lenders and found the average monthly repayment on a £100,000 mortgage to be £604, and the average MPPI rate to be £5.78 per £100 of monthly cover.

Over 25 years this represents a total MPPI cost of £10,473 (£604 x 12 x 25 x 5.78% = £10,473). This compares with a rate from Burgesses of only £4.00 per £100, or a total cost of £7,157 (£604 x 12 x 25 x 4.00% = £7248) representing a total cost saving of £3225 or £129 annually. Applied to the 2.2m UK MPPI policies, the savings figure comes to £7.095 billion

About the author: Sarah Kirby has been working in Financial Services for 25 years’ and is head of Product Development at specialist insurance website www.protection-insurance.com. If you are looking for Mortgage Payment Protection Insurance visit us now