At the time of writing (December 2008), the UK has been in the throes of a severe economic downturn. Redundancies are rife, with analysts predicting that unemployment figures will rise to 2.7m by the beginning of 2010 - equivalent to a jobless rate of 8%. Many individuals and families are struggling to keep a roof over their head and are falling further in to debt as they try to service their bills. That is why the importance of income, mortgage and loan repayment protection in this "Credit Crunch" environment should not be underestimated.
What do these policies do?
Mortgage payment protection insurance (MPPI); loan payment protection insurance; and income payment protection insurance are all part of the payment protection insurance (or ASU insurance - accident, sickness and unemployment insurance) family.
This insurance does what it says on the tin - protects your payments / income against the financial fall out of losing your income due to involuntary unemployment or incapacity.
Mortgage payment protection insurance and loan payment protection insurance are policies aimed at helping you maintain specific debts - ie a mortgage or loan repayment. With these two protection insurance policies, you will receive a tax free monthly amount that can be used to help maintain your mortgage and loan commitments. With the former, the income can also help towards mortgage related costs such as home insurance and, life and critical illness cover.
An income payment protection insurance policy protects your income as a whole and will provide, again, a tax free monthly amount. However, you can use this money for whatever purpose you wish, such as rent payments; grocery bills; or even fuel costs to travel to job interviews or hospital appointments if you are ill.
How long will it pay out for?
Once you have made a claim on your cover, the policy will pay out the benefits until you get back to work or for up to 12-24 months (whichever event happens first), depending on the provider. Policy features and benefits will vary among the different providers so you do need to check out the small print to ensure you have the level of cover that you need.
Could it benefit you?
If you are worried about not being able to meet your bills in the event of incapacity or involuntary redundancy, then yes, a payment protection insurance could be right for you.
As an example, an industry expert recently commented that repossession is a big worry for us Brits, with the homeless charity Shelter reporting a shocking 167% rise in telephone calls to its helpline in the past six months. Many of these calls were from families seeking guidance about repossession.
However, recent statistics show that over 88% of mortgage payment protection insurance claims are accepted with the average length of a claim payment being for nearly six months. This gives a homeowner breathing space to find alternative employment or focus on getting better, without having the worry of how they will keep they home safe from repossession.
Of course, you may think that with finances tight already, you would not want to outlay yet more money every month. However, payment protection insurance does not need to be expensive. If you shop around among the independent providers, you can find comprehensive cover from just a few pounds every month for every £100 worth of protection needed. This means that having adequate protection is not prohibited by the cost.
Redundancy and incapacity could happen to anyone of us, it is not discriminatory. And that is why income, mortgage and loan payment protection insurance can literally be a financial lifesaver should disaster strike.
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