Mortgage Insurance: Overview

Mortgage repayment insurance (otherwise known as Mortgage Payment Protection Insurance or MPPI) will cover a policyholder's monthly mortgage repayments should their earning capacity change due to redundancy, poor health or passing away. Hence, MPPI appeals to homeowners who are financially responsible for others and want the peace of mind of knowing that, whatever happens, they won't loose their property.

People often make the mistake of thinking that the welfare state will rush to their aid should they need it. However, recent governmental cut-backs mean that this is no longer the case. State benefits are notoriously slow to materialize and there's likely to be a considerable financial shortfall between the amount you receive and your ballooning mortgage areas. Unfortunately this could put your property at risk, which is where Mortgage Payment Protection Insurance cover comes in.

As a rule of thumb you can expect mortgage repayment insurance policies to pay out after a month's unemployment. Payments are commonly made directly to the mortgage provider, although terms and conditions vary. Additional insurance cover can be taken out to meet the cost of household bills while the homeowner is looking for work.

Banks and building societies only insist that borrowers take out MPPI with a handful of mortgages. However, if you consider that rising house prices are forcing more and more buyers to over-stretch themselves, then it's easy to see how mortgage repayment insurance could benefit any homeowner.

Most mortgage insurance policies will cover mortgage repayments for up to a year, in which time it's expected that the fortunes of the policyholder will have changed. It's important to understand that MPPI acts as a temporary 'fix' and that anyone looking for more permanent cover should consider life insurance or health insurance.

It's worth shopping around to find the most competitive policy, but you should expect to spend somewhere between £5-6 for each £100 of monthly cover (it's up to you to decide how much cover you want to take out).

© AskFinancially.com 2008

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