We often get told ‘we’ve got mortgage indemnity’ or ‘we don’t need mortgage payment protection as we’ve got mortgage indemnity’. So we thought we had better put the record straight on the differences between the two.
If you are paying mortgage indemnity insurance (which you shouldn’t be) you are paying for a lender to be protected should you fall foul of the credit agreement and not pay the loan or mortgage.
Mortgage indemnity is insurance that your lender may ask you to take out for its protection in case, at some future stage, you fall significantly behind with your mortgage payments and your lender has to repossess your property and sell it. If the property is sold for less than the amount of your outstanding mortgage, your lender can claim on the mortgage indemnity to recover some (or all) of its loss.
You should be aware that mortgage indemnity does not cover you. You must repay all the money owed under your mortgage, whether or not your lender makes an indemnity claim.
Mortgage payment protection insurance or MPPI protects your mortgage payments should you lose your job or get sick. Most mortgages can be covered for under £20 per month if you go to an independent supplier such as Personal Accident or British Insurance.
MPPI, or mortgage payment protection insurance, is private insurance that borrowers may take out to insure against sudden loss of income due to unemployment or health-related difficulties. This type of insurance is also known as Accident, Sickness and Unemployment insurance or ‘ASU’.
It is a good idea to take out MPPI, or some other form of income protection insurance, because state benefits do not normally cover mortgage interest during the first nine months you are out of work. The above independent suppliers will offer insurance cover that is suitable for you and your circumstances – and can cover you if you are self-employed, on a fixed term contract, or have a pre-existing medical condition.