As the economy continues to fluctuate, ensuring that you can continue to pay your bills should you loseyour job is becoming ever more important. Job security has become a top concern for homeowners. If you have recently taken out a mortgage, you likely signed up for some form of mortgage protection. However, a common misconception is that this single policy covers every eventuality.
The short answer is: Probably not.
Standard mortgage protection generally refers to Decreasing Term Assurance (life insurance), which pays off your loan if you die. It rarely covers unemployment. To protect your home against redundancy, you specifically need Mortgage Payment Protection Insurance (MPPI) or a dedicated Redundancy Cover.
In this article, we’ll look at the cover that you need to have in place to protect your income, the questions to ask, and answer some of the most-asked questions.
The Difference Between Life Cover and Job Loss Cover
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It is vital to distinguish between the different types of protection available. Many homeowners mistakenly believe their life insurance policy will help them if they are laid off.
- Decreasing Term Assurance: This is the most common mortgage protection. It is designed to pay a Lump Sum Payout to clear your mortgage balance only if you pass away or, in some cases, are diagnosed with a terminal illness. It provides zero support for job loss.
- Critical Illness Cover: This is often sold alongside life insurance. It pays out a lump sum if you are diagnosed with a specific serious illness (like cancer or stroke). However, like life insurance, it does not cover redundancy or unemployment.
Income Protection Insurance: This covers you if you cannot work due to illness or injury. While excellent for long-term sickness, standard income protection policies rarely include unemployment cover unless explicitly added.
What You Need: Mortgage Payment Protection Insurance (MPPI)
If your primary worry is paying the mortgage after losing your job, you need Mortgage Payment Protection Insurance (MPPI), sometimes known as Accident, Sickness, and Unemployment (ASU) cover.
Unlike a Lump Sum Payout, Mortgage Payment Protection Insurance (MPPI) provides a monthly tax-free benefit designed to cover your mortgage repayments (and sometimes an extra percentage for bills) for a set period—usually 12 to 24 months.
How Mortgage Payment Protection Insurance Works
When you suffer involuntary redundancy, Mortgage Payment Protection Insurance steps in to pay your monthly mortgage costs. This buys you valuable time to find a new job without the threat of repossession looming over you.
However, the Underwriting Process for these policies can be strict. Insurers will assess your industry, job stability, and history. If you are aware of impending job cuts at your workplace before taking out the policy, you may not be covered.
Guidance: Setting Up the Right Policy
Choosing the right protection requires balancing cost against the level of cover. Use the following steps to ensure you are setting up a robust safety net:
- Check your employer’s redundancy package first: Before buying insurance, review your contract. If your employer offers a generous redundancy payout (e.g., six months’ salary), you may only need a policy with a longer “deferred period” (waiting period), which will significantly lower your premium.
- Select the right “Deferred Period”: This is the time between losing your job and the insurance paying out. Options typically range from “Back to Day One” (more expensive) to 30, 60, or 90 days. If you have savings to cover three months of mortgage payments, choosing a 90-day deferral can make your Premium Calculation much cheaper.
- Verify the Policy Term: MPPI is short-term protection. Ensure you understand that the Policy Term for payouts is capped (usually 1 year). It is not a permanent income replacement; it is a bridge to your next job.
- Scrutinise the “Exclusions”: This is critical. Almost no policy covers voluntary redundancy, resignation, or dismissal due to misconduct. Furthermore, many policies have an initial “exclusion period” (often 60 to 120 days) after you sign up, during which you cannot claim for redundancy. This stops people from buying insurance only when they hear rumours of layoffs.
- Combine covers for better value: Buying standalone Redundancy Cover can be expensive or hard to find. It is often more cost-effective to buy a combined ASU (Accident, Sickness, and Unemployment) policy.
- Review “Linked” vs. “Standalone” policies: Some lenders offer this cover linked to your mortgage, but “standalone” policies from independent providers are often cheaper and offer better terms.
Comparison: Which Cover Do You Actually Need?
It can be confusing to distinguish between the different types of insurance available. Use this table to understand which policy provides the specific protection you are looking for.
Policy Type | What it Covers | Payout Style | Covers Redundancy? |
Mortgage Payment Protection Insurance (MPPI) | Accident, Sickness, and Unemployment (ASU). Designed specifically to keep your roof over your head. | Monthly payments (Usually capped at 12 or 24 months) | Yes (If “Unemployment” is selected) |
Income Protection Insurance | Inability to work due to illness or injury. Covers a portion of your salary until you retire or return to work. | Monthly payments (Long-term) | No (Standard policies are for health only) |
Critical Illness Cover | Diagnosis of a specific serious illness defined in the policy (e.g., Cancer, Stroke, Heart Attack). | Lump Sum Payout | No |
Decreasing Term Assurance | Death or terminal illness. Designed to pay off the mortgage balance. | Lump Sum Payout | No |
Checklist: What to Ask Your Insurer Before You Buy
Don’t get caught out by the fine print. Use this checklist when speaking to an insurance broker or provider to ensure your Mortgage Payment Protection Insurance actually protects you.
- The Basics of the Payout
- Is this ‘Back to Day One’ cover?
- Why ask: Some policies make you wait 30 days and then start paying. “Back to Day One” cover means if you are out of work for 30 days, they backdate the payment to the day you lost your job, so you don’t lose a month’s income.
- What is the maximum monthly benefit cap?
- Why ask: Most insurers cap payouts at 50-65% of your gross salary or 125% of your mortgage payment. Ensure this amount actually covers your bills.
- How long will the policy pay out for?
- Why ask: Confirm if the support lasts for 12 months or 24 months. Once this period ends, the payments stop, even if you are still unemployed.
- The Hidden Exclusions
- What is the Initial Exclusion Period?
- Why ask: This is the “no-claim zone” right after you buy the policy (often 60 to 120 days). If you are made redundant during this time, you get nothing.
- Does this cover ‘Voluntary Redundancy’?
- Why ask: Most policies strictly cover involuntary redundancy only. If you volunteer for a package to save a colleague’s job, you likely won’t be covered.
- How do you define ‘Knowledge of Risk’?
- Why ask: If there were company-wide emails or rumors of layoffs before you bought the policy, the insurer might refuse your claim. Ask them exactly what counts as “prior knowledge.”
- Job Specifics
- I am on a fixed-term contract. Am I covered?
- Why ask: Many policies exclude contract workers or only cover them if the contract is terminated early, not if it simply ends naturally.
- Does this cover me if I am fired for performance?
- Why ask: Redundancy cover is for job loss due to economic reasons. Dismissal due to misconduct or underperformance is almost never covered.
Frequently Asked Questions (FAQs)
Does Critical Illness Cover pay out for redundancy?
No. Critical Illness Cover is strictly for medical emergencies defined in the policy (e.g., heart attack, cancer). It is not related to your employment status.
How is the cost of my insurance decided?
The Premium Calculation is based on your age, mortgage repayment amount, and the level of cover you choose. Crucially, your job stability and industry risk also play a role in the Underwriting Process.
Can self-employed people get Mortgage Payment Protection Insurance?
It is very difficult. Because self-employed individuals cannot be “made redundant” in the traditional sense, standard MPPI policies usually exclude them. Self-employed workers should look into specific Income Protection Insurance tailored to their status, though this may focus on sickness rather than lack of work
Will the policy pay off my whole mortgage?
No. Unlike Decreasing Term Assurance, which clears the debt upon death, redundancy insurance covers the monthly repayments temporarily. It does not provide a Lump Sum Payout to clear the total debt.
And Finally…Don't Leave Your Security to Chance
Losing a job is stressful enough without the added panic of wondering how you will pay the mortgage. As we have explored, relying on standard mortgage protection often leaves a dangerous gap in your safety net. While Life Insurance and Critical Illness Cover are essential, they won’t keep the lights on if you are made redundant.
Finding the right balance—between affordable premiums, the correct deferred period, and a policy that actually pays out when you need it—can be a minefield. One wrong box ticked during the Underwriting Process or a misunderstood exclusion could mean your claim is rejected right when you are most vulnerable.
This is why professional advice is not just a luxury; it is a necessity.
Insurance isn’t about buying a product off the shelf; it’s about building a fortress around your financial future. You need an expert who understands the fine print of Redundancy Cover, who knows which insurers are currently favorable to your specific industry, and who can tailor a package that fits your budget.
Secure your home and your peace of mind today.
If you are unsure about your current level of cover or want to set up a robust plan that protects you against job loss, contact Liddle Perrett today. Our team of experts will guide you through the options, cut through the jargon, and help you find the protection you actually need.
