We are experiencing extraordinary changes in financial security. After years of job security, job losses are now becoming the norm in virtually all sectors and it's becoming more and more essential that homeowners protect themselves against loss of income.
MPPI, ASU,PPI and IPI - all these forms of insurance are bandied around, but the only product out of all of them that will directly give protection should redundancy arise, is Mortgage Payment Protection Insurance, or MPPI.
Both MPPI and its partner PPI (Payment Protection Insurance) are forms of ASU (Accident, Sickness and Unemployment Insurance). PPI will cover loans and credit card payments in the case of sickness, accident or unemployment, subject to terms of the individual agreement, but not mortgage repayments.
MPPI is frequently sold by mortgage providers in conjunction with a mortgage. It is designed to match mortgage payments in the event of ill health or the loss of your job. However, financial advisers warn that it comes with some serious restrictions. It only pays for 12 to 24 months of redundancy and there are a number of exclusions.
As Matt Morris, policy adviser at protection specialist Lifesearch, says: "We'd only recommend MPPI for redundancy if you're really worried about it as the exclusions can be so high."
Yet another product, Income Protection Insurance (IP), on the other hand, offers a far more comprehensive type of cover than MPPI, but only covers against illness. As an example of differing cover, the two main reasons for claiming under an IP contract are back pain and stress - but neither of these would be covered under the majority of MPPI policies.
It could be a far simpler alternative to arrange an emergency fund which could cover redundancy and just take out an IP plan. Some cash back up would be needed in any case as with most of these products, there is a waiting time of at least a month before pay out begins.
People shouldn't be pushed into taking out an MPPI product unless it's what they really need. The help of an adviser should be sought and MPPI should be compared with other products before making a decision.
Another factor is price. MPPI can be more pricey than IP where the policyholder is in good health and relatively young. The reason for this is that with IP there is a lowering of rates for younger people, provided they are in good health, whereas MPPI doesn't tend to take this into account, due to the shorter time in which it pays out.
As a comparison, with MPPI a typical cost for 1,000 pounds a month of cover for a healthy, non-smoking 35-year-old would be 18 pounds and 20 pence a month in premiums for both men and women. The same cover for IP would be 16 pounds and 62 pence for women, and just 13 pounds and 25 pence for men.
It is really important that you compare like for like. Some policies have a one month delay before pay out, whereas others make you wait for two months. Some policies will pay out for just 12 months, others could be 24 months. An adviser will be up to date on this and make the choice much more clear for you.
Something which could apply to simply anyone in the current economic climate - any one with a sound reason to fear redundancy will not be able to get cover. For example, if you know that the company you work for will be parting with a certain percentage of staff. So if you're just worried about things generally but have no reason to expect redundancy, maybe some cover, just in case, would be a wise move.
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