It's time to beat the protection racket

If you are looking for a New Year's resolution that is easy to tick off and doesn't involve giving up chocolate or working up a sweat, 'check mortgage payment protection insurance' (MPPI) fits the bill perfectly - unless you bought your policy from the Market Harborough Building Society. Since this regionally based mutual - which sells MPPI only to its own borrowers - doesn't make its customers pay through the nose for cover, the only benefit you'll get from checking the policy is the warm glow of knowing that you've secured the best deal in the market.

Do you need MPPI?


Irrespective of which institution your policy is with, no MPPI policy offers a good deal if you're one of the estimated 45 per cent of borrowers who don't actually need this kind of cover. MPPI - also known as accident, sickness and unemployment (ASU) cover - aims to meet your mortgage pay ments and, sometimes, other mortgage-related bills for a minimum of 12 months if you lose your job or your earnings suffer as a result of illness or accident.

However, if your ability to meet your monthly mortgage repayments would be unaffected by illness or unemployment - you have sufficient savings, for example, or you could rely on a partner's income or you have a flexible mortgage that allows payment holidays - you can probably do without it. And it's not worth paying for it if you are over the age of 64 or if, when you took out the policy, you were already out of work (or aware of subsequent redundancy) or a part-timer working fewer than 16 hours a week, since you were technically ineligible for MPPI and any claims you make are likely to be rejected. For the same reason, MPPI could be a waste of money if you have not been in continuous employment for at least six months or you have been working on short-term contracts for less than two years.

Check your cover levels

Paying for cover you don't need is a waste of money and highly likely if you have a policy from one of the top 10 lenders. With the exception of Cheltenham & Gloucester, the price you pay for MPPI is determined by the size of your monthly mortgage repayment, with the premium per £100 of cover multiplied accordingly. So, for example, if your monthly payment is £600 and you pay the £6 or so per £100 charged by Abbey, Alliance & Leicester, Halifax, HSBC and the Woolwich, the monthly cost of MPPI will be about £36.

But if you haven't reviewed how much cover you are paying for since taking out your policy, you could easily be paying well over £100 a year too much. Why? Because Cash has discovered that none of the top 10 lenders automatically adjusts premiums in line with changes in monthly mortgage repayments that arise as a result of interest-rate changes. So if, for example, you took out a £100,000 standard variable-rate mortgage five years ago when your monthly mortgage repayment was about £800, the cost of MPPI will still be based on this amount rather than the £625 or so that your mortgage is costing you now.

Not reviewing cover is less damaging to your bank balance with lenders that have reduced the cost of MPPI - which includes Abbey, Bradford & Bingley, Nationwide and Northern Rock. But with those such as Halifax, HSBC and the Woolwich, which have put up the price of MPPI, you could be wasting as much as £180 a year on unnecessary cover.

Is it time to switch?

Depending on your lender, paying only for cover that you need should save you between £6 and £15 a month, but you could save even more by switching to a stand-alone policy from an independent MPPI provider such as Rhino Insurance (0870 240 3946), which charges only £3.95 per £100 cover - an average saving of just over £10 a month compared with what's on offer from the big lenders. Younger borrowers, in particular, could save even more by switching to a policy from Pinnacle Insurance (0800 0350 292), which takes your age into account when setting premiums. A 34-year-old, for example, will pay as little as £2.02 a month per £100 of cover, which is less than half of what even the cheapest of the top 10 lenders charges for MPPI.