Contents: Mortgage & Income Protection Plans

What Is A Mortgage Protection Plan (MPPI)?

What Are Income Protection Plans (PHI)?

Different Types Of Income Protection Insurance Cover

Where To Get Your Insurance Cover

Applying For Your MPPI Or Your PHI

Frequently Asked Questions

Where To Get Further Help

Mortgage and income protection plans Life is full of surprises! For this reason, some people like to plan for as many eventualities as possible to secure their future, and insurance is a tool that helps us do that. In this booklet we look at the insurance protection that is offered by Mortgage Payment Protection plans (MPPI) and Income Protection Plans, also known as Permanent Health Insurance (PHI).

A 25-year-old man has a 33% chance of being disabled and unable to work for three months or more. Think about that and having

some sort of income protection becomes a very good idea.

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What is Mortgage Payment Protection (MPPI)? This is an insurance policy that was created in order to cover your mortgage repayments, should you suffer from an illness or injury which results in you not being able to work, or in the event of redundancy. Should your income disappear, you will be grateful for the cover that this provides. The name Mortgage Payment Protection Insurance, is misleading in the sense that the plans are not solely restricted to covering mortgages payments. For a further premium you are able to cover other home related financial commitments such as any premiums you are paying for any endowments or home insurance (create link to home insurance booklet) and even some necessary household bills. MPPI polices are commonly offered at the time of applying for your mortgage, however you should be aware that you are free to shop around and are not obliged to take the one that is offered by your Lender. There are many insurance companies that offer MPPI policies and are possibly more competitively priced than those offered by Mortgage providers.

Since mortgages are secured on your property, if

you default on the payments, the Lender has the right to repossess your

home.

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What are Income Protection Plans? These aim to provide you with an income which replaces your regular income should you not be able to go to work because of a form of illness, or if you suffer an injury. You pay premiums, which are affected by certain criteria, and then you receive cover for the period which you are unable to work, this may take you up to retirement age, when you would normally have ceased employment and be receiving pension payments. The maximum benefit is usually between 50% - 80% of your income, you may also be entitled to receive incapacity benefit and statutory sick pay from your employer. It is in the insurers best interest that you are enticed to go back to paid employment as soon as possible, and for this reason they do not pay 100% of your earnings. However, whilst you are still paying your premiums you can make as many claims as you need to, so if you suffer from many separate illnesses you are still covered.

There are different levels of cover which offer different levels of benefits and the premium are obviously affected by this.

Different Cover Types Benefits

Level Benefit Cover stays the same throughout the claim period, meaning your cover decreases in real terms.

Growth Benefit Cover increases by an agreed amount per annum.

Optional Increasing Benefit Allows the policy holder increase benefit by a certain percentage after each regular period.

Index Linked Benefit The benefits increase alongside inflation.

Before taking out any insurance policies, check what cover you already have. It is also worth speaking to your employer as some companies have an insurance known as Group Income Protection Policy. This insurance covers the companies employees against loss of earnings due to accident and illness but it doesn’t cover you for redundancy.

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Different types of income protection insurance cover

Insurance Plan What does the policy

cover How long before the policy pays out

Length of payment benefit

Mortgage Payment Protection MPPI

Accident, sickness, redundancy. Specific policy to cover the cost of mortgage and associated costs.

Typically 1 month after you stop earning.

Typically for a 12 month period.

Mortgage Protection Life Cover

In the event of your death the policy pays the remainder of the mortgage.

On receipt of copy of death certificate.

One lump sum.

Income Protection or Permanent Health Insurance PHI

Illness or disability. This policy will cover part of your income.

Varies from 1, 3, 6 or even 12 months.

Continues to pay out a tax free income until you return to paid employment.

Life Insurance Insurance on life, money is commonly used to pay off any outstanding debts.

On receipt of copy of death certificate.

One lump sum.

Critical Illness Used to cover any debts and other expenses in the event of being diagnosed with a critical illness such as cancer, MS, Kidney failure. Check what illnesses are covered.

On receipt of doctors certificate. Usually 1-3 months.

One lump sum.

Payment Protection Insurance PPI also known as Account Cover or Payment Cover

Accident, sickness, redundancy or death. Used to cover repayments on loans, mortgages, store cards and other debts.

Typically 1-2 months.

Monthly amount paid for a limited time, usually 12 months.

All insurance policies have terms and conditions attached, make sure that you read these carefully and ensure that you understand them. If you do require the insurance company to pay out and all of the terms and conditions have not been met then you may find that the policy is void.

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Where to get your insurance cover Today the insurance market is a very competitive one. You can source insurance policies from many different outlets...

Online, this is a good way to compare prices

High Street Lenders, usually offer insurance at time of applying for a mortgage or loan.

Large supermarket chains, many supermarkets have booklets in store informing you of the insurance policies that they offer.

Yellow Pages, have lists of insurance companies which will be able to provide a quote over the telephone.

Insurance Broker, it is useful to use an independent Broker and let them shop around for you. Check their fees.

When you decide to take out a policy make sure that you shop around. When comparing different companies insurance policies, make sure you consider.....

Cost of your monthly premiums

How long is it before the policy pays out?

How long do you receive your benefits for if you do make a claim?

What criteria do you have to meet for the policy to pay out?

Do the benefits increase with inflation?

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Applying for your mortgage payment protection insurance or your income protection plan

Once you have decided on the right policy for you take extreme care when completing your application, as any incorrect information will lead to the policy being invalid. Insurance companies will investigate the information you give if you should ever want to make a claim.

Most Insurance companies will only provide a MPPI or a PHI if you....

are over 18 years old

in permanent employment which has been continuous for at least 6 months

are NOT aware of any impending redundancies

declare all medical conditions, most insurers will not provide cover for income loss related to pre existing medical conditions

Premiums on your policy are calculated and maybe affected by the information that you give, such as:

Age

Gender

Whether you smoke

Hobbies

Health

Occupation

Obviously, if you are a Lorry driver who is a heavy smoker and your hobby is sky diving, your premiums may be higher than someone who is a non smoker, works in an office and likes aerobics!

Remember.... Ensure that all the information you give is correct and true as your policy will be void if you

fail to declare relevant information. Insurers WILL

investigate your application if you make a claim.

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Frequently asked questions

I have had my mortgage for over 12 months, can I start a Mortgage Protection Plan now? Yes, you don’t have to take out the MPPI at the start of your mortgage.

We have a joint mortgage, but as I am the main earner, can we insure just the main income? Yes. It is possible to insure just one income, this obviously only pays out if anything happens to that income.

How much should I expect to pay? Premiums vary between individuals. They are affected by gender, hobbies, occupation, age, health and whether you are a smoker. The premiums will also differ greatly between companies, so make sure you shop around!

I have suffered with a stroke approximately 2 years ago, will I be able to get Income Protection Insurance? Yes, you will be able to get cover. However, when filling out the application you must declare your health history and you will find that insurers will not cover you for pre-existing health problems or any illnesses which are a direct result of pre- existing conditions.

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Where to get further help If you need help finding an Insurance Broker take a look at the British Insurance Brokers Association: www.biba.org.uk Find out if the financial organinsation you are dealing with has been approved by the Financial Services Authority: www.fsa.gov.uk/register/home.do

Complaints regarding insurance companies: www.financial-ombudsman.org.uk

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