For many people, a large-scale loan can be a terrify prospect. After all, in these uncertain times, with the economy slowing, home sales lagging, and prices dropping, it is a substantial risk, taking on a mortgage; or any other large debt, for that matter. That is why some people like to get payment protection; also known as payment protection insurance (PPI) in some places. In fact, if you are in the United States, and you are getting a loan through the Federal Housing Administration (FHA), they require you to get PPI. In the case of some private lenders, they will require payment protection if the value of the mortgage is more than eighty percent of the value of the home. PPI has become very popular in the United Kingdom as well; and is known as Mortgage Payment Protection Insurance (MPPI) there.
What is Payment Protection?
So, just what is PPI, and what does it do for you? As the term implies, it is a form of insurance. In the event you are unable to continue paying on a loan due to illness, an accident, or some other major catastrophe, the payment protection company will make those monthly payments. Many times, the lender of a mortgage will sell you a payment protection insurance policy, but you do not always have to buy from them. As with anything else in life, you can often shop around and find the best deal. When you consider the plethora of companies you can find just by search the Internet with a decent search engine, it makes sense to do a little comparative shopping before settling on a PPI.
Qualifications Needed
Normally, the companies have a variety of requirements you have to meet in order to qualify for a policy. You have to be in the right age range – not too young or too old; and be gainfully employed – either at a firm for a minimum period of time, or self-employed and able to show a consistent level of income. There is usually a waiting period before the policy kicks in, and then the payment period normally varies. In some cases, you can purchase mortgage insurance that will pay off the entire loan, but that is usually only in the event of the mortgage holder’s death! So, while your estate would benefit from that, you would not. No, with a normal payment protection policy, the payment period will vary from one to two years.
Also, while some PPI policies are only intended to cover major hardships, you can purchase policies that are much more flexible. As an example, in the United Kingdom, a payment protection plan that covers you in the event of unemployment is quite popular. When you consider the state of the economy, such a policy does not sound so bad; despite the higher premium. As with other PPI policies, the payment period for unemployment is typically one to two years.
Paying for Payment Protection
The question of premiums brings up an important point: how do you pay for a PPI (or MPPI)? Typically, the annual premium is divided equally across your twelve annual mortgage payments. So, this is why it is important to shop around and see what sort of premium you are going to pay, depending on the timeframe you want to cover, and the type of coverage (accident, illness, unemployment etc.) you want. Naturally, a twelve month PPI that only covers major medical issues will be much cheaper than a twenty-four month plan that covers everything.
Here are the factors for you to consider: how much more does the bigger policy cost? What will it add to your monthly payment? Can you handle that? Looking ahead, what are the chances of you losing your job – whether through layoffs, down-sizing etc. – in the near future? Weigh all of these carefully before deciding on a course of action.
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