Why payment protection faces the chop

First Consignia threatens to cut 30,000 jobs, and now we have this week's announcement that coal production at the giant Selby complex in Yorkshire is to be phased out, with the probable loss of 5,000 jobs.

Accountancy firm KPMG added to the roll-call of redundancies by cutting more than 700 jobs and the FTSE 100's descent below the 4,000 mark triggered fears of a new wave of axe-wielding in the City.

It's at times like this that insurance covering your mortgage payments in the event of misfortune striking, comes into its own.

So it's hard to avoid being cynical when it was revealed this week that Marks & Spencer Financial Services - a leading provider of mortgage payment protection insurance (MPPI) - has chosen to suddenly pull out of the market, less than two years after it started selling these policies. Its 17,000 existing MPPI policyholders are being transferred to another company whose terms and conditions allegedly aren't as favourable.

This type of insurance, also known as accident, sickness and unemployment cover (ASU), is often bought at the same time as the mortgage is taken out, and covers your monthly home loan payments if you become unemployed or unable to work due to an accident or illness.

It usually pays out for a period of 12 months - sometimes 24 months. The government is keen to see more people taking out MPPI cover (fewer than one in four borrowers has it) because it is concerned about how many people would meet their mortgage payments if they were to lose their income.

These worries have been exacerbated by speculation that interest rates may be set to rise soon, pushing up mortgage costs. The M&S move comes just weeks after it was revealed that Standard Life Bank had substantially increased its MPPI premiums as a result of a change in the insurer underwriting the cover. Other lenders are also thought to be reviewing their premiums following pressure from insurers worried about a rise in claims.

Jobs & Money was alerted to M&S's decision by reader Toby Stockton, who emailed us to say the company had decided to withdraw its service "without explanation".

He claims: "It is transferring my cover to a company called Pinnacle with the price I pay for cover remaining the same, but under worse terms and conditions."

Mr Stockton, 34, who lives near Hemel Hempstead, Hertfordshire, pays about £25 a month for his cover. He signed up with M&S three months ago and had previously had his insurance with the Halifax. He says he is "extremely annoyed" that M&S can simply pull out like this "and it's our hard luck," adding: "I'm going to have to look for another policy because I'm not really happy about this."

He says that under the terms of the new provider, the initial qualifying period before new customers can make an unemployment claim has been raised from 30 to 120 days, some new exclusions have been added, and if you have claimed for accident or sickness you can't claim again for the same condition unless you have returned to work for six months (previously it was 120 days).

A spokesman for M&S's financial arm says it had been keen to offer customers "a seamless transition and consistent cover".

There is no change in what people pay and they don't have to reapply. He says M&S had undertaken a review of various areas of the business and "regrettably it was concluded that MPPI was not a particularly good fit for the business going forward".

Pinnacle Insurance, meanwhile, stresses that "people know up-front of the differences and can make their decision whether to continue cover with us, or look around and go elsewhere".

So how much can you expect to pay for this sort of insurance? Typically mortgage payment protection cover costs around £5-£6 per £100 of monthly mortgage repayment - so £25-£30 a month if you're paying £500 a month to your lender.

The best deal comes from Market Harborough building society, which charges £1.75 per £100 - less than a third of some major rivals. But this offer is limited to Market Harborough borrowers. Cheltenham-based Mortgage Arrangers (mortgagearrangers.co.uk) offers unemployment and disability cover starting at £3.45 per £100, with cover for unemployment only starting at £2.25 per £100.

There are potentially several million people who could be in serious danger of sliding into debt with their mortgage payments if misfortune strikes. They may hope the state will come to the rescue.

However, restrictions on state help with mortgage interest payments were introduced in 1995. People who have taken out a mortgage since October 1995 will have to wait nine months before they are entitled to receive income support for mortgage interest payments (ISMI), and even then it is means-tested. Once they have qualified they will only have their mortgage interest paid - not any of the capital nor any of the mortgage-related insurance products.