Mortgage Payment Protection Insurance Provides Home Security

By Simon Lance Burgess

There are a few different types of insurance protection for consumers looking to protect themselves against missed income from the loss of a job due to redundancy, illness, or accident. The basic type is usually either mortgage or loan payment protection insurance or a salary income payment protection plan. Brits must examine their own financial situation and needs, as well as the unique benefits of different policy types, when deciding which coverage is right for them.

Although many of the benefits are similar, the basic difference between mortgage payment protection insurance and salary protection coverage is that mortgage coverage provides relief for those needing to meet monthly mortgage payment demands. Income protection, however, is intended to help offset some of the lost income that people rely on to meet basic budgetary requirements from month to month.

Typically, mortgage payment protection insurance policies offer a higher payout percentage, based on the covered person's normal monthly income. A mortgage cover, for instance, may allow coverage up to 65 per cent of income, while an income protection plan may only allow coverage of 50 per cent of the lost income. This means, of course, that premium costs are higher for the mortgage protection, or the higher payment protection policies.

Consumers need to keep in mind that payment protection policies are short-term in nature. Often confused with long-term income protection insurance, payment protection insurance is short-term, typically providing 12 to 24 months of monthly payments. Payments begin thirty to ninety days after a covered event, which must occur for the coverage benefits to kick in.

The payment protection insurance (PPI) industry has come under heavy scrutiny. It was targeted in 2005 by Citizen's Advice, a consumer group, for mis-selling practices and questionable sales techniques used by some leading banks and lenders and is now in the hands of the Competition Commission.

Many providers have been charged with selling policies to customers who are ineligible to receive payout benefits, such as part time employees and retired people. Others believe that, while not necessarily illegal, providers that have packaged payment protection plans with mortgages, credit cards, or other loans, have unethically deceived consumers. Institutional providers generally offer premiums 40-80 per cent greater than can be attained from more reputable insurance brokers or specialists. They also tend to have a greater focus on lining customers up with the appropriate protection. For large institutions, payment protection is often considered simply an add-on product.

Consumers can put themselves in the best position by knowing the right questions to ask when looking at mortgage payment protection insurance products. They should avoid feeling pressured to by from mortgagers or credit card companies, but should look to brokers or specialists to learn about plans and explore benefits and terms of each. In spite of attempts by regulators to more thoroughly protect customers, there will always be some unscrupulous providers looking to take advantage of the unknowing consumer.

Simon Burgess is Managing Director of the award-winning British Insurance, a specialist provider of mortgage payment protection insurance.