Homeowners must protect themselves against unemployment

‘My advice is generally to buy MPPI from your mortgage provider because they have a vested interest in making sure any claim is paid,’ says Simon Burgess of broker Burgesses which specialises in all forms of payment protection.  But can you still get protection if, for example, you work in the public sector, the health service or some other industry where it is known that there will be redundancies?  ‘Yes’ says Burgess, ‘as long as you haven’t personally been notified of redundancy.’  The policies usually offer monthly cover for up to 12 months, with a few paying for as long as 24 months.  You can cancel the policy at any time but the insurer must generally give you 12 months notice of cancellation.  Premiums are generally reviewed every 12 months - so they can go up. 

Meeting other costs

Some insurers offering MPPI allow you to insure for more than the actual cost of the mortgage repayments so that you can also meet utility bills and general housing costs.  Most MPPI is sold as Accident, Sickness and Unemployment (ASU) cover.  Since many employers will pay your salary if you are off work through sickness, a large proportion of homebuyers don’t need this cover.  ‘You can still buy standalone unemployment insurance but sometimes it is cheaper to buy the combined cover even if you don’t need the sickness insurance,’ says Burgess.  He advises those under 45 to go for a policy which offers premiums related to age.  For the over 45 it is usually cheaper to opt for a flat rate policy where your age is irrelevant.

How much does MPPI cost?

According to Burgess it costs around £40 a month for every £1,000 a month of MPPI cover (or £4 a month for every £100 of mortgage repayments) with a limit of around £1,500 to £2,000 a month.    This means that unless you have a very large mortgage it should be possible to insure for enough to cover the monthly payments.

There is usually a waiting period before benefits start to be paid but the best policies offer ‘back to day one’ cover.  This means that although you have to wait before becoming eligible, when benefits are paid they are backdated to the first day of unemployment.

Burgess also points out that for the self-employed unemployment insurance is a waste of money – although sickness cover is necessary.  ‘Unemployment cover for the self-employed is worthless because you have to be declared bankrupt to be eligible to claim.’

Brokers specialising in MPPI and income protection include www.britishinsurance.co.uk.  www.burgesses.com.  You can also find a specialist broker at www.biba.org.uk the British Insurance Brokers Association website.  Or check out www.unbiased. co.uk  which represents over 90% of independent financial advisers.