Private insurance policies that cover mortgage payment protection (MPPI), are designed to protect the loan repayments in case of illness, accident, or unemployment. MPPI allows individuals to choose to cover both their monthly mortgage payments and associated home expenses (within certain limits). The amount of MPPI coverage an individual takes out will depend on their financial situation and their risk tolerance. These are some factors to consider when deciding on how much mortgage payment protection insurance you should take out.
Monthly mortgage payments and related costs
There are two limits when deciding on how much coverage to get. The minimum coverage of zero and the maximum amount of the monthly loan payment and any associated costs. In addition to the monthly direct loan payment, individuals can also insure 25 percent for any associated costs like utility bills and local tax. The maximum amount that can be insured is 125% of monthly mortgage loan payments. However, this limit is subject to caps.
Insurance provided by company
Sometimes, income protection insurance is provided by the company an employee works for. Income protection is insurance that covers the earnings of an individual, and pays out if they are off work because of sickness or injury. The MPPI’s accident and sickness coverage may be canceled. Mortgage payments can be covered by income protection policies. The policy’s redundancy component can be purchased as an independent policy.
Employer sick pay
Many companies will provide some sick pay for employees who are unable to work because of illness or injury. Sick pay is only good for a limited time, and not all employers will pay full salary sick leave. An individual who is considering MPPI should ensure that the policy’s deferred period matches the length of their sick leave if the employer covers all of the sick pay. An individual might consider adding MPPI coverage to their sick pay if they receive less sick pay from their employer. However, the MPPI coverage cannot be increased after the sick pay period has ended. It is better to get full mortgage protection at the beginning of the policy.
Save!
An individual may have substantial savings. Mortgage payment protection insurance might not be required in this situation. MPPI can be used to insure monthly mortgage loan payments, but also to ensure that family savings are not used to pay for these repayments. MPPI coverage could be used to cover as much of the loan repayment as possible.
When deciding on how much mortgage payment protection insurance you should take out, it is important that you consider all possible liabilities (monthly mortgage payments plus associated home expenses), company-provided insurance, sick pay, and savings. MPPI is expensive in monthly premiums. Therefore, individuals should consider the financial risk that they could face if they lose their job, are unable to work because of illness or accident and then compare that risk with the cost of their premiums when making their coverage choices.