Mortgage Protection Insurance Explained


For when the unexpected happens, make sure you and your family are protected, with mortgage protection insurance.

One big barrier people have to face when sorting out their mortgage protection insurance, is that none of us want to think about something bad happening to either ourselves or those around us. But, protecting your mortgage, making sure that if something did happen – either a loss of job and therefore income, or an illness – the mortgage would be covered, and your home would be safe from repossession.

How does mortgage protection insurance work?

Your mortgage is likely to be your largest monthly outgoing – and so if you were suddenly unable to work, due to illness or redundancy for instance, it’d likely be your biggest financial concern, as failure to pay, could mean losing your home.

There are two main options when it comes to mortgage protection insurance:

  1. You take out mortgage protection insurance specifically to cover your mortgage payments if you face a specific set of situations – as defined by your lender
  2. Or, you get general income protection insurance (where the payments you would receive could be used for anything).

What will my mortgage protection insurance cover?

This will depend on the insurance provider and the options you go for – different insurance companies offer varying products. You’ll always be asked what you want to protect. This could include:

  • Salary
  • Mortgage payments
  • Any loans you might have
  • Credit card repayments
  • Any other financial commitments

You can usually protect up to 65% of your gross salary. Your policy will pay out until you can start working again.

Is mortgage protection insurance compulsory?

No, it’s not compulsory, but certainly a good idea – giving you peace of mind that if something went wrong you’d be able to pay your mortgage, and ultimately keep your house. You should think carefully about how you would cope in each of the scenarios the insurance would cover if you didn’t have this protection. E.g. ask yourself, ‘how would I pay my mortgage if I was off sick?’ ‘what would I do if I was made redundant?’

In some cases you may have cover through work or protection built into your employment contract, so it’s worth asking your company for any related policies before signing up to anything new.

Will mortgage protection insurance cover the mortgage if my partner or I die?

No, in general Mortgage Protection Insurance doesn’t cover death. The purpose of the insurance is to cover your monthly mortgage repayments, if you’re unable to work due to an accident, sickness, or loss of your job.

To be covered for death, where your partner would get a lump sum if you died, you need to take out a mortgage life insurance policy, which is also a good idea.

What are my first steps to getting mortgage protection insurance in place?

  1. Ask yourself what it is you want to cover, this will depend on your situation. For instance, if it’s a joint mortgage there might be one of you who earns significantly more than the other, and you might choose to cover just that salary for now, if you feel you’d be fine without the other income.
  2. Have a look around at different products. You’ll notice the various costs and options out there.
  3. Speak to a broker. It’s hard to get around the fact that finding mortgage protection insurance can be quite stressful. There are so many factors to consider, and the application process can be fairly detailed, especially with lots of medical questions to answer. Our broker Clever Mortgages are experts in finding the right protection product for their customers – and just one application is all you need for them to search the market for the best deal for you.
  4. Once you’ve got your mortgage protection insurance in place, make sure you keep all the details of your policy safe, so that you know where to go to if something did happen. These days, lots of insurance companies will simply give you a login to a portal where you can review your policy details at any time.
  5. Also consider Mortgage Life Insurance. This will pay out to the other named person on your policy – usually your partner – a lump sum which usually is the amount of your remaining mortgage balance, that they can use to either pay off the mortgage or keep for other outgoings. This is often a decreasing term policy, as over the years your mortgage balance will go down. For this kind of policy, you need to make sure the insurance covers the remaining term of your mortgage, e.g. 25 years. Alternatively you could opt for a level term policy where the payout would remain static over the policy term rather than decrease, this tends to be a more expensive option.

How much does mortgage protection insurance cost?

The amount you pay each month will depend on which type of cover you choose, how long you want to be covered for and the percentage of income you’d like to cover. Other factors that impact the cost are:

  • Age
  • Job
  • Whether you’re a smoker
  • Family medical history
  • Your general health