How Payment Protection Works
Previously mortgage payment protection insurance was sold on the basis of simplicity and insurers charged one fixed rate no matter what age the policyholder was. That single rate was then applied to the monthly benefit that policyholder selected. This made the product very simple to explain and understand but meant that the policy took no account of the differing risk between the older policyholder and the younger policyholder.
It has often been felt that younger policyholders represent a lower risk. They tend to suffer from less sickness and accidents and if they do have an illness or an accident then they tend to recover quicker. Also the younger person often finds it easier to get a new job if they find themselves unemployed.
With the new age rated mortgage payment protection insurance the policy has several rates which are related to the age of the policyholder when they first take out the policy. This age related rate in then applied to the monthly benefit level selected by the policyholder.
The policy still provides for 12 months maximum benefit payable after you have been unable to work for more than 30 consecutive days resulting from accident, sickness or involuntary unemployment.
Like other payment protection insurances the premium is not affected by occupation, smoking habits or lifestyle.
The premium is set when the policy is first taken out. There is no automatic premium increase clause so the premium will remain the same even though you get older. But please remember that these policies are renewed each month as you pay the next month’s premium by direct debit. Whilst there is no clause for insurers to automatically increase the premium due to your age, the premiums are not guaranteed to be fixed either. So if the insurers did suffer a bad claims experience on this class of business then they would be entitled to change the level of premium they charge. Equally if they had a very good claims experience they could reduce the premium. Historically insurers have always done well out of this class of insurance but who can foresee what will happen in the future.
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