Payment Protection/Income Protection Insurance

The Government's guidance to home-owners is clear: "If you have a mortgage, or are about to take one out, you should think seriously about how you would meet your mortgage repayments if you lost your income, say through unemployment or ill health"

State help in the event of injury, sickness or redundancy
Limited help is available from the State, but it may not apply to you. Even if it does, it may not be enough to prevent you falling behind with your mortgage payments, e.g.:
• you will not qualify if you have a joint mortgage and only one of you loses your income – even if your partner works as little as 16 hours a week
• you will not qualify if you have savings of more than £8,000
• you will usually only start to receive help nine months after you become unemployed (earlier assistance may be available if you took out the mortgage before 02/10/95)
• you will only receive help to cover the payment of interest (capital repayments, investment premiums and insurance premiums are not included)
• you will usually only receive help on the first £100,000 of your mortgage

Some Important Statistics
• Employment (according to Government statistics)
• 755,000 people were made redundant in the UK between June 2002 and May 2003 - the equivalent of over 3,000 every working day.
• On average, 1.5 million people were claiming unemployment benefit during that time

• Accidents do happen
• Over 320,000 people were killed or injured on UK roads in 2000*
• Nearly 3 million people suffered injuries at home in 2000 that warranted a visit to A&E*
• Over 47,000 employees suffered major injuries at work in 2001, with 736 resulting in death**
*Royal Society of the Prevention of Accidents (Rospa)
**Health and Safety

• Health
Statistics from Cancer Research UK and the British Heart Foundation show that:
• Four out of ten people will be diagnosed with cancer at some stage during their lifetime
• Heart disease kills one in four men and one in six women and is the biggest killer in the UK
• Someone suffers a heart attack every four minutes**

Payment Protection Insurance
Payment Protection Insurance protects your ability to maintain repayments and avoid getting into debt should you be unable to keep up repayments due to accident, sickness or redundancy.

Cover is usually arranged at the time the finance arrangement is made. It is easy to purchase, as there are few eligibility requirements (typically you should be aged 18 to 65 and employed for at least 16 hours a week or on a long term contract or have been self-employed for a period of time). All policies will have a waiting period at the start of each claim before payments begin. Once a claim has been accepted, benefit payment periods will vary but typically, claims are paid for up to 12 months in most cases, but some may last as long as 24 months.

The level of State benefit has reduced for mortgages taken out since October 1995. Borrowers now face a nine-month wait before benefit begins and even then there are additional restrictions and you may only receive limited assistance. Payment protection insurance provides a useful safety-net and could help you keep your home.

The Citizen's Advice Bureau confirmed that it deals with over one million new debt enquiries a year, suggesting that many are struggling to maintain payments.

According to the Institute of Fiscal Studies, around half of the UK population has £600 or less savings. Nearly half do not save regularly and a third have no savings at all. This lack of saving could cause financial hardship in the event of sickness, accident or redundancy.

Consumer Attitudes to Mortgage Payment Protection Insurance
NOP Financial carried out research in March 2001, looking at consumer attitudes to, and awareness of, MPPI. It found:
• Those who made a claim for MPPI were overwhelmingly satisfied with both the payout and the smooth running of the process. Almost three-quarters of those receiving claims payments felt it had been easy.
• A significant and worrying proportion of consumers - one in five - believed they could rely on the State for financial assistance if they were unable to work. For many, this would not be a realistic option. State benefits to support mortgage repayments are capped and means-tested and, even if borrowers are eligible, they have to wait nine months before receiving the first benefit payment.
• Around a third of those without MPPI said they would rely on savings and investments to pay regular bills if they were unable to work. This seemed relatively risky given the low level of savings in the UK (only £750 per household, on average).

Important Exclusions
• You must not be aware of impending unemployment at the time you buy cover. Policies usually do not cover unemployment occurring within an initial period of time following the purchase of the policy (usually 60–120 days).
• Policies exclude claims arising from pre-existing medical conditions that you are or should reasonably be aware of when the policy is purchased. Medical conditions about which you had arranged to see a doctor during a specified period immediately before the start date of the policy may also be excluded. Claims from your own actions as a result of drug or alcohol abuse are not covered.
• There is usually a waiting period at the start of each claim, typically 30 days. Some policies then pay benefits from that date or from day one of the claim (usually one month in arrears).
• Policies typically pay out for 12 or 24 months or until you return to work, if sooner.
• Some policies will cover you if you are self-employed with my own business, if you have involuntarily ceased trading and have informed the Inland Revenue. Voluntary insolvency is not covered.
• Some insurers will provide cover if you are employed on a contract basis (i.e. not a permanent employee) provided that, at the time of the claim, you have been on a contract for at least 12 months and had it renewed at least once or worked continuously for at least 24 months.
• Pre-existing medical conditions - some insurers will accept a claim if you had been free of symptoms for a certain length of time prior to taking out the MPPI. Chronic conditions may be excluded due to their recurrent nature.
• Normal pregnancy and childbirth risks are excluded unless there is a serious medical complication which is diagnosed by a recognised obstetric specialist.
• If you are aware at inception of the policy that you were likely to become unemployed, the insurer will not pay, whether you had official notice or not.
• Some insurers may suspend your claim whilst you are working and start again when the work ends, without having to wait again. They will total all the payment period towards the maximum period benefits may be paid.

Your Mortgage Options LLP is authorised and regulated by the Financial Services Authority for regulated mortgage contracts and non-investment insurance contracts.

We offer products from a range of insurers for home insurance, term assurance and critical illness protection. We only offer products from a limited number of insurers for mortgage payment protection insurance. Ask us for a list of the companies and products we offer.

We will advise and make a recommendation for you for life and critical illness insurance after we have assessed your needs. You will not receive advice or a recommendation from us for home insurance or mortgage payment protection. We may ask some questions to narrow down the selection of products that we will provide details on. You will then need to make your own choice about how to proceed.

We do not charge a fee for any non-investment insurance contracts. You will receive a quotation which will tell you about any other fees relating to any particular insurance policy.