Payment protection insurance

Is there a more disliked financial product out there than Payment Protection Insurance (PPI)? It is offered to help you repay loans if you fall ill or lose your job but nearly a third of all complaints to the Financial Ombudsman Service last year were about these PPIs.

However, most of the complaints were about the way PPIs were sold, not the deals themselves. And with the Bank of England threatening to put up interest rates, while homeowners are being squeezed in every financial direction, Mortgage Payment Protection Insurance (MPPI) - which covers repayments on home loans in the event of unemployment, accident, illness or unemployment - is in demand.

“It is essential that consumers with mortgage debt have a strategy for paying their mortgage repayments if they are unable to work and have no income,” says Ben Heffer, at financial research firm Defaqto.

MPPI policies usually only last a year, so if you can cover monthly mortgage payments independently for that time, a policy might not be worthwhile. If your employer has generous sick and redundancy pay benefits, you might get away without an MPPI. But note if the firm went bust, you would only receive statutory allowances from the Government.

Compare policies’ benefit periods - all policies pay out for at least 12 months. but Defaqto says 14 per cent have a two-year option while nine per cent offer a six month payment period.

You MUST check deferral periods. Most policies wait 30 days before payments begin, but some also offer backdated cover from when you stopped being paid.

Avoid double insuring too - some health insurance policies will pay part of your salary if sickness prevents you from working, for example. And ensure your MPPI provider is covered by the government-backed Financial Services Compensation Scheme, so if the insurer went bust, you would be protected.

Banks and mortgage lenders generally charge the most for MPPI. “On average, MPPI costs between £3 and £5 per month per £100 of benefit depending upon your age the product you choose and the options you select. It is definitely worth shopping around,” adds Heffer. Independent Financial Advisors can provide personalised advice.