In an article in the Guardian Newspaper (27 March) Rupert Jones examines the cost of mortgage payment protection insurance in light of the increase in unemployment. He says, “More than 20,000 people have, this month seen the cost of mortgage payment protection insurance jump by about 20%.”
Jones poses the question, “Is MPPI really worth taking out? He turns to the consumer organisation Which for the answer. Which is unequivocal in their dislike of the product and say, “It is not a great product, just 28% of premiums collected are paid out in claims.”
The Financial Services Authority (FSA) have a slightly different view and say, “MPPI can provide worthwhile cover” but it cautions that people should be aware of its “limitations and exclusions.”
While the Guardian has only highlighted the upward trend of MPPI costs there is ample evidence that increased costs are now also a factor in other elements of redundancy insurance.
What is Redundancy Insurance?
Redundancy insurance policies are not confined to offering mortgage cover. There are a variety of redundancy insurance policies that will cover a percentage of person’s income if their job is made redundant. Although most policies can be purchased separately, for example loss of income insurance, mortgage payment protection insurance, rental payment insurance and loan payment insurance, some companies will offer their customers a package designed to meet their specific circumstances
Income Protection Insurance
Income protection insurance gives a policyholder a percentage of their monthly salary if made redundant. Although maximum pay out rates will vary between insurance companies many will only offer 50% of monthly salary.
For those people presently considering some form of redundancy insurance, a word of warning. If at the time of taking out the insurance cover there was a foreseeable chance that a company was planning to make some jobs redundant the policy might be deemed invalid.
Mortgage Payment Protection Insurance
Mortgage Payment Protection Insurance (MPPI) is designed to cover mortgage payments (some policies also cover items like building insurance) in the event of redundancy, accident or sickness.
Redundancy Insurance Eligibility Criteria
The majority of insurance companies will have strict eligibility criteria for any form of redundancy insurance. For example:
- Policyholders would normally be between 18 and 64 at the date cover started
- Policyholders have to be working 16 hours a week or more
- Employment must be regarded as permanent and not on a fixed term contract
- There may also be strict rules regarding any pre-existing medical conditions
Following the row over the inappropriate selling of loan cover payment protection insurance (PPI) the advice from financial experts is very clear.
Redundancy insurance, whether that is income insurance, mortgage payment protection insurance or indeed any other form of payment protection insurance can be very valuable and may provide a safety net in difficult times. However people should shop around for the best deal and make sure it’s appropriate for their particular circumstances.
Sources:
moneysavingexpert.com, Redundancy and Payment Protection, website accessed 31/4/10
moneymadeclear, Insurance, website accessed 21/4/10
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