When you take out a mortgage you’re making a long-term commitment to make the monthly repayments for the duration of the mortgage. That will be over many years but you’re making that commitment without knowing what’s going to happen during that time. That’s a big risk. Mortgage Payment Protection Insurance is one of a range of insurances that includes life insurance and critical illness insurance, which you can take out to reduce that risk.

The purpose of Mortgage Payment Protection Insurance (MPPI) is to ensure that your mortgage repayments will continue to be paid if you’re off work for an extended period due to accident, sickness or unemployment.

If you have a normal repayment mortgage, the value of monthly MPPI cover needed equals the value of your monthly repayment. However, if you have an interest only mortgage, then the cover value needs to include the monthly the mortgage interest repayment plus the monthly cost of the savings vehicle you’re using to repay the mortgage at the end of its term. Remember that if your mortgage repayments were to rise due to an increase in interest rates, then you’ll need to increase the level of cover. Oh yes, the good bit – if you have a claim then the income payout is tax-free!

The best bit of advice we can give is always buy an MPPI policy where the premium can be cancelled without penalty at any time. Never, accept a policy where the future cost of premiums is added to the mortgage or loan in any way – those types of policy tend to work out very expensive.

As with most forms of insurance, you’re likely to find it cheapest on the internet. Indeed, this site has teamed up with British Insurance to offer you a superb MPPI deal. Click here for more details.

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