Mortgage payment protection Insurance (MPPI) was formerly known as accident, sickness and unemployme...
Mortgage payment protection Insurance (MPPI) was formerly known as accident, sickness and unemployment benefit. In a bid to complement the limited State benefit available and to provide better protection for consumers against the risk of mortgage arrears, last year the Council of Mortgage Lenders and ABI announced a joint initiative to set minimum standards for these products. These included:
l All polices to pay out after a maximum of 60 days.
l All policies provide at least 12 months' payment cover.
l Fewer automatic exclusions for medical conditions such as backache and pregnancy complications. These will be individually assessed rather than automatically refused.
l Contract workers to be able to claim for unemployment benefit, provided they have worked for the same employer for at least a year. Self-employed people will be able to claim provided they have informed the Inland Revenue they have involuntarily ceased trading and have registered for Job Seeker's allowance.
By setting these minimum standards, the ABI and CML have paved the way for increased promotion and awareness of the need for this type of cover.
The previous section on mortgage income protection plans looked at research carried out to examine mortgage holders' views on how they would continue to pay their mortgage if they were too ill to work. While this is still very relevant here, additional research covered mortgage holders' views on how they would continue to pay their mortgage if they were unemployed for six months or more.
The graph opposite shows that, alarmingly, 43% of mortgage holders believe that the State will meet their mortgage payments if they were unemployed. This is far from the case.
State provision
You will only receive State help with your mortgage payments if you are eligible for either income support or income-based Job Seeker's allowance.
l Income support is a means-tested benefit - if you have £8,000 or more of savings you will not qualify.
l If you have paid enough national insurance contributions you will get contribution-based Job Seeker's allowance for up to 26 weeks.
l After 26 weeks, or if you do not qualify for contribution-based Job Seeker's allowance, you may qualify for income-based Job Seeker's allowance. Like income support, this is means tested. It will also depend on when you took out your mortgage (see flow chart opposite).
Housing costs covered by the State include:
l Mortgage interest payments.
l Interest payments under a hire-purchase agreement to buy your home.
l Interest on loans for repairs to your home to maintain its suitability for occupation.
They do not include any payments for life cover or to an investment used to build up money to repay your mortgage.
Fewer than 4% of people claiming income support or income-based Job Seeker's allowance are currently receiving State help with their mortgage payments.1 The ABI/CML initiative has done much to raise awareness of this type of cover and make it easier for both the IFA and consumer to compare products due to the element of standardisation.
However, consumers are still wary of buying this type of cover, with a perception that claims will not be paid as insurers hide behind the small print. Of those who do take out the cover, some feel that it is a compulsory part of their mortgage package or take the easy route of buying their lender's cover when they take out their mortgage. Where does this leave the IFA?
Role of IFA
Some lenders have introduced questions on their application forms to allow borrowers to either take their cover, state they have alternative cover or sign a disclaimer to say that they understand the consequences of not having this type of cover. There is no reason why IFAs cannot use a similar type of disclaimer as part of their own advice process, covering not only MPPI, but all forms of mortgage protection.
An IFA is in an ideal position to build the right cover for their client by combining different benefits. This has advantages in cost and in tailoring the cover to exactly meet client needs in term of the exclusions and when each benefit will become payable. This is especially important for self-employed and contract workers who benefit most from this type of cover but who often find the cover available restricted.
Claire Williams is product marketing manager, mortgage protection, at Scottish Provident
Sources:
1. Statistical Quarterly Inquiry into Job Seeker's allowance
