Protecting your ability to pay your mortgage can give peace of mind, and there are several types of insurance to consider. This guide explains mortgage protection insurance: the main types, what each covers, why people consider them, what is and is not required, and how to think about your needs.
What mortgage protection means
Mortgage protection insurance is a general term for policies that help protect your ability to keep paying your mortgage, or clear it, if something goes wrong, such as death, serious illness or loss of income, as our guide to how a mortgage works relates. These are separate products from your mortgage, and which, if any, you take is a personal decision based on your circumstances and what protection you already have.
Life insurance
Life insurance pays out if you die during the policy term, which can be used to clear the mortgage so your family can stay in the home. It often comes as decreasing cover, falling in line with a repayment mortgage balance, or level cover, staying the same, as our guide to repayment and interest-only relates. So life insurance protects your family from being left with the mortgage if you die, which many homeowners value.
Critical illness cover
Critical illness cover pays out if you are diagnosed with one of the serious illnesses listed in the policy, which can help clear or reduce the mortgage or cover costs during illness. It is often combined with life insurance. So this cover protects against the financial impact of a serious illness, not just death. Because the conditions covered vary by policy, it is important to understand exactly what a critical illness policy includes.
Income protection
Income protection pays a regular replacement income if you cannot work due to illness or injury, helping you keep up your mortgage and other costs while you are unable to earn. Unlike a one-off payout, it provides ongoing income, usually until you recover, retire or the policy ends. So income protection guards against loss of earnings, which for many is the most likely threat to keeping up their mortgage payments.
Mortgage payment protection
Mortgage payment protection insurance (MPPI) is designed to cover your mortgage payments for a period if you cannot work due to accident, sickness or sometimes unemployment. It is more specific than income protection, focusing on the mortgage. So MPPI can help in particular situations, though the cover and exclusions vary, so it is important to check exactly what a policy provides and whether it suits your needs and circumstances.
What is and is not required
Most protection insurance is optional, a personal choice rather than a requirement, though lenders usually do require buildings insurance as a condition of the mortgage, to protect the property, as our guide to keeping up payments relates. So you are generally not obliged to take life, critical illness, income or payment protection, but they can provide valuable security. Whether to take them depends on your circumstances, dependants and existing cover.
Thinking about your needs
Deciding what protection you need depends on your situation: whether you have dependants, your savings, any cover through work, and how you would cope financially if you died, fell ill or lost your income. There is no one-size-fits-all answer. So it is worth considering your own circumstances and existing protection, and taking advice if helpful, to decide which, if any, of these policies would give you the security you want.
Decreasing versus level life cover
Life insurance for a mortgage often comes in two forms: decreasing cover, where the payout falls over time in line with a reducing repayment mortgage balance, and level cover, where the payout stays the same, as our guide to repayment and interest-only relates. Decreasing cover suits a repayment mortgage, while level cover may suit interest-only or leaving a lump sum. So the type that fits depends on your mortgage and your wishes.
Cover through your employer
Before buying protection, it is worth checking what you already have, as some employers provide life cover (death in service), sick pay, or other benefits that may reduce what you need to buy. So you may have some protection already. Knowing what your employer provides helps you avoid over-insuring and focus any cover you buy on the genuine gaps in your protection, which is a sensible starting point.
How much cover and for how long
How much cover you need, and for how long, depends on your mortgage size, your income, your dependants and your circumstances, with the term often matched to your mortgage term. So there is no standard amount; it is personal. Thinking about what your family would need, and for how long, helps you choose a suitable level and length of cover rather than guessing or simply taking whatever is offered.
The cost of protection
The cost of protection depends on factors such as the cover type and amount, your age, health and lifestyle, so premiums vary between people and policies. So it is worth comparing. While protection is an added cost, it buys valuable security, and the right cover need not be expensive. Comparing policies, or using an adviser, helps you find suitable cover at a fair price for your circumstances.
Reviewing your cover
It is wise to review your protection over time, as your circumstances change, for example if you have children, your income changes, or your mortgage reduces, so your cover continues to match your needs. So protection is not entirely set-and-forget. Periodically checking that your cover still suits your situation helps ensure you are neither under-protected nor paying for more than you need as life moves on.
Getting advice on protection
Because the right protection depends on your circumstances and existing cover, advice can help you work out what you need and find suitable, fairly priced policies, as our guide to using a mortgage broker relates, since many brokers also advise on protection. So if you are unsure, getting advice is worthwhile. An adviser can assess your situation and recommend cover that genuinely fits, helping you avoid both gaps and unnecessary expense.
Peace of mind
The value of protection is peace of mind: knowing that if the worst happened, your home and family would be more secure, as our guide to keeping up payments relates. So while it is a personal choice and an added cost, suitable protection can be reassuring. For those with dependants or limited savings especially, the security that the right cover provides can be well worth the premium.
Whether or not you take any of these policies is entirely your decision, but it is one worth making consciously rather than by default, so that you know exactly how you and your family would cope if your income or life changed.
In short
Mortgage protection insurance covers the main risks to paying your mortgage: life insurance clears it if you die, critical illness cover pays out on a serious diagnosis, income protection replaces lost earnings if you cannot work, and MPPI covers payments in certain situations. Most are optional, though buildings insurance is usually required. Which, if any, you need depends on your circumstances, dependants and existing cover, so consider your situation carefully.
Where to get help and next steps
Read our guides to how mortgages work, help with mortgage payments, and repayment and interest-only. This is general information, not insurance or financial advice.