The Mortgage Finance Blog

Given the recent bad press payment protection insurance and its mis-selling has been getting recently, you would be forgiven for dismissing the product out of hand.
There is no state aid for mortgage payments in the event that you are made redundant. For the first nine months you will have to fund the mortgage and all your other commitments from your savings and jobseekers allowance.
What if you’re self-employed? Have you ever considered how you would pay the bills if you broke an arm and were unable to work for several months?

Despite the bad press, payment protection insurance is perhaps more important now than it ever has been. With the Citizens Advice Bureau reporting a 179% increase in the number of enquiries it has received about redundancy in the first three months of 2009, there is clearly a need for adequate insurance.

Mortgage payment protection insurance, or accident, sickness and unemployment (ASU) insurance as it is also known has always been a valuable product. Typically monthly payments for ASU are low, often in the order of £20 a month and yet provide invaluable protection for you and your family. The monthly payout from an ASU policy will provide cover for your mortgage payments (and optionally other loan commitments). These payments will make your life easier should you lose your job and provide enough time for you to find another position without the bailiffs knocking at your door.

Some policies sold in the past had so many exclusions that the insurer very rarely paid out. In addition many of these policies were sold as a single premium whereby the entire cost of the insurance is paid up front. These single premium policies were generally sold with a loan and the cost of the insurance added to the loan, sometimes without the implications of this being explained to the client.
Single premium policies can be the right option for some clients, but they’re certainly not a panacea for all. Unfortunately some loan providers implied that taking the insurance was a requirement of the loan, or worse still recommended a client take the insurance despite the fact that the client would be ineligible to claim under the policy. Recent changes in regulation have put a stop to these mis-selling practices.

In the current climate, the number of claims for unemployment is on the increase and many insurers have responded by only accepting applications from people who have remortgaged or taken a new mortgage in the last 30 days. It is now vitally important that you consider payment protection insurance whenever you change the terms of your mortgage, as you may not be able to do it later.

• Always tell the insurer or broker about any previous medical conditions
• Read the list of exclusions in the policy summary document, this will tell you what you can’t claim for
• If you are remortgaging, ensure you existing policies provide enough cover, particularly if interest rates rise
• If you are purchasing a property or remortgaging and don’t have any cover, speak with your broker about payment protection insurance
• If taking a loan or a mortgage from a bank, don’t take their product automatically, speak to a broker and search out some other quotes. Remember a bank will only sell you its own products.