Overall, one in five homeowners around 2.2 million people have MPPI, and almost one in three new mortgages are covered. Sales are also likely to rise further, with a target of 55 per cent of MPPI-covered homeowners by 2004.It is certainly in the Government's interests for you to have protection, to drive down the state benefits bill. Mortgage lenders also have an interest, taking a neat commission on the policies they sell and protecting their lending into the bargain, while insurance companies too make a tidy profit.But is MPPI in your interests?One problem is that if you are unable to repay your mortgage, the cover only meets payments for 12 months, occasionally two years. Thereafter, you must throw yourself on the mercy of the state. And despite this limited term, cover is not cheap typically costing between £4 to £6 for every £100 of monthly mortgage payment protected, regardless of your age, profession or state of health.
If your mortgage costs £600 a month, you could pay an extra £36 for the cover.MPPI is sold by banks, building societies and specialist insurers, and the lucrative mark-up on the product is highlighted by building society Market Harborough. The society generously sells cover at cost price to members, who pay just £1.75 per £100 of monthly mortgage payment.Diane Saunders, an independent financial adviser, says MPPI is expensive considering the limitations on cover. "You cannot claim on the policy if you accept voluntary redundancy, resign from your job, or take early retirement in lieu of unemployment," she says.Only those living in areas with few employment opportunities or job skills that are not easily transferable should consider cover, she says. "If you have, say, computer skills and could get a new job easily, you probably don't need protection against unemployment. Teachers and nurses, who are in short supply, can also do without it. You should also consider whether you could survive on your partner's income, or any savings, until you find a new job," adds Ms Saunders.If ill-health is your concern, a different type of cover, known as income protection insurance, may do the job far better.
This pays a regular monthly income if you are unable to continue working after illness, and pay-outs are maintained if you recover or retire.Siobhan Hotten, of mortgage brokers John Charcol, says many homeowners with MPPI have bought cover they don't need. Few realise they can separate the accident and sickness element from redundancy cover, and therefore reduce premiums. "Those in employment may not need accident or sickness cover, because they already receive these benefits from their employer for six months or longer. Similarly, the self-employed will see no benefit from redundancy cover. You don't have to buy both elements," she says.To prevent homeowners knowingly buying a plan just before lay-offs are officially announced, claims won't usually be paid within 60 days of setting up the cover, warns Johannes Kennard, a broker with London & Country Mortgages. Even if you do secure a payout, you will not get it immediately. Policies do not pay for the first 30 or 60 days of unemployment.
