If you unexpectedly lose your income and have mortgage payment protection insurance, it should cover your repayments

If you're made redundant, suffer a serious illness or are forced to give up work, managing the loss of income is going to be hard. But if you were one of the millions who were persuaded to buy an income protection policy, there maybe a silver lining to your dark cloud.

Mortgage payment protection insurance was sold on the basis that it would make repayments on your mortgage (and other related expenditure such as buildings insurance), in the event of accident, sickness or unemployment knocking your income. Payment protection policies similarly promised to cover the repayments on a loan or credit card bill. They have been the subject of millions of mis-selling claims because they had so many exclusions that it was hard to claim, or were sold to those such as the self-employed who were unable to claim.

If you have an MPPI policy and the worst has since occurred, now's the time to dust down your paperwork and go into battle, because it could be about to come to your aid.

About 2 million homeowners are believed to have MPPI policies. Research by the Competition Commission revealed that before the start of the recession 28% of premiums were paid out in claims, so some people have clearly been making claims.

How do I know if I have a policy?

The most obvious place to start is to ask your loan, credit card or mortgage providers whether you have any form of protection insurance policy in place.

This is the most likely source as the majority of policies were sold at the point the loan was taken out. Did a salesman ask you how you'd make payments if you fell ill and couldn't work – and quote an premium of just a few pounds a week? If so you're probably covered. If that doesn't yield anything, then check credit card statements for any mysterious payments leaving your account.

What can you expect?

These policies vary enormously, and what you'll get depends on the terms and conditions of the one you have. Typically MPPI policies normally start paying out in 30 or 60 days after being alerted and most will backdate the benefit so you'll be covered from the point you are made redundant or signed off work.

Many policies limit the monthly payments covered, often to £1,500 or £2,000 a month, so those with bigger mortgages may find this it doesn't cover all their outgoings.

Payouts are also often limited in relation to the size of the salary you've lost.

Preparing to make a claim

One key reason for a claim to be turned down is if there was a possibility that you would be made redundant before the policy started. If you are claiming for that reason, it's worth establishing your story and getting chronology of events in place before you make the claim, to lessen the chances of a claims handler picking holes in your claim.

Also expect to come up with evidence, particularly if you make an illness claim. Stress and back pain are the two main reasons for people being off work, and insurers vary widely in terms of the information they require to prove claims for these conditions. Most want evidence from a specialist, not only your GP. NHS waiting times could make this a long process.

What if your claim is rejected?

If you make what you feel is a genuine claim and it is turned down for spurious reasons, or they make a lower offer than you feel you should have got, you have a few options.

In the first instance you should appeal to the insurer, who will tell you how to do this.

If this fails, you can take the matter to the Financial Ombudsman Service. This is free to consumers, but costs the firm involved up to £600 for each case. FOS is supposed to rush claims to the top of the pile where the claimant is suffering undue financial hardship, which given that you are not working you should be able to argue.

If you are really sure of the case, consider taking the matter to the small claims court. This will cost about £120, but you will get this back if the court finds in your favour. Only do this if you are sure the insurer will still be around to pay up if you win.

The last option is to take a mis-selling claim. Don't use a claims handling firm, use Guardian Money's template letter and again – be ready for a long wait.

One thing to note, insurance claims are not taxable, so a MPPI policy payments would not be counted as income. If you make a mis-selling claim and you awarded a payout, however, the taxman will deem that an income and will want his share at the appropriate rate.

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Miles Brignall

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source: http://www.guardian.co.uk/money/2013/feb/15/making-insurance-claim


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