Financial planning isn’t just about saving money or paying off your mortgage. It’s also about thinking ahead and preparing for unexpected situations that could affect you or your family.
Mortgage protection insurance is one way to do that. If you’re wondering whether you need it in the UK, keep reading as we explain what it covers and when it may be worth considering.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is a type of insurance that helps cover your mortgage if you’re no longer able to make the repayments. It isn’t one single policy. Depending on the cover you choose, it can include life insurance, critical illness cover or income protection.
Each type of cover pays out in different circumstances. Life insurance and critical illness cover usually pay a lump sum if you make a successful claim. Income protection pays a monthly income if illness or injury stops you from working. Some mortgage payment protection policies don’t start paying straight away and may include a waiting period of around 30 to 180 days before payments begin, depending on the insurer and the policy.
If your policy provides monthly payments, they’ll usually continue until you return to work or until the maximum payment period set out in your policy is reached. Some policies cover 12 to 24 months, while others can continue longer. Before taking out any mortgage protection policy, it’s worth checking when it pays out, how long payments last and any exclusions or waiting periods that apply.
Do You Need Mortgage Protection Insurance in the UK?
Mortgage protection insurance isn’t a legal requirement in the UK, and most mortgage lenders won’t insist that you take out a policy before approving your application. However, some lenders do require you to have buildings insurance in place before your mortgage completes, which is separate from mortgage protection insurance.
Even though it’s optional, mortgage protection insurance is something worth considering when taking on a mortgage. If you were to pass away, become seriously ill or be unable to work for a long period, your mortgage repayments would still need to be made unless another arrangement was in place.
Before taking out a policy, it’s also worth checking what protection you already have. Some employers provide benefits such as death in service, life insurance or long-term sick pay, which may already give you some financial protection.
What Are the Types of Mortgage Protection Insurance?
Mortgage protection insurance can include different types of cover, depending on what you’d like the policy to protect.
Life Insurance
Life insurance pays a lump sum if you pass away during the policy term. Your family can use the money to repay some or all of your outstanding mortgage, depending on the amount of cover you’ve chosen. If you have a repayment mortgage, you may also come across decreasing term life insurance, where the amount of cover reduces over time in line with your mortgage balance.
Critical Illness Cover
Critical illness cover pays a lump sum if you’re diagnosed with a serious illness that’s covered by your policy. The money can be used however you choose, whether that’s paying towards your mortgage, covering household bills or helping with other expenses while you’re recovering.
Income Protection Insurance
Income protection insurance pays a regular monthly income if illness or injury stops you from working. Instead of replacing your full salary, it usually pays between 50% and 70% of your pre-tax income, depending on the insurer and the policy you choose. You may consider income protection worth it if you rely on your income to cover your mortgage.
How Much Does Mortgage Protection Insurance Cost in the UK?
The amount you pay will depend on the type of cover you choose, the level of cover, your age, health, occupation, smoking status and the length of your policy.
For example, a healthy non-smoker in their 30s taking out decreasing term life insurance for a £250,000 repayment mortgage may pay from around £10 to £30 per month for basic cover. Adding critical illness cover or choosing a higher level of protection will usually increase the monthly premium.
If you’re applying for income protection insurance, insurers will also look at your income and occupation. Jobs with a higher risk of injury may have higher premiums than office-based roles, and the deferred period you choose can also affect the cost of your policy.
Mortgage Protection Insurance Pros and Cons
Here’s a quick look at some of the benefits and things to consider before taking out a policy.
| Pros | Cons |
|---|---|
| Helps protect your mortgage if you pass away, become seriously ill or unable to work, depending on the type of cover you choose. | Monthly premiums become an ongoing household expense for as long as the policy remains active. |
| Gives your family financial support during difficult circumstances, which may reduce the risk of falling behind on mortgage repayments. | Not every policy covers the same events, so it’s important to check exactly what’s included. |
| You can choose the type of cover that matches your circumstances, whether that’s life insurance, critical illness cover or income protection. | Some policies include waiting periods before you can make a claim, particularly those that pay a monthly income. |
| Policies can often be arranged to match the length of your mortgage. | Medical conditions, smoking, age and occupation can all affect the cost of your premium. |
| Some policies pay a lump sum, while others provide a regular monthly income, depending on the type of cover. | A claim may not be paid if it falls outside the policy terms or exclusions. |
| Can be taken out when buying a home or added later if your circumstances change. | Premiums usually increase if you apply when you’re older or after developing certain medical conditions. |
| Gives you the flexibility to combine different types of cover if you want broader protection. | Taking out more than one policy will increase your overall monthly cost. |
Is Mortgage Protection Insurance Worth It?
Yes, if you’d find it difficult to keep up with your mortgage repayments if something unexpected happened. Having the right cover in place can help protect you and your family if you’re no longer able to make those payments.
It can also give you more financial stability while you focus on recovering or help your family avoid worrying about the mortgage during an already difficult time. The type of cover you need will depend on what you’d like the policy to protect.
If you’ve already got life insurance, sick pay through work or other protection, it’s worth checking what you’re already covered for before taking out another policy. You may already have some protection in place, but it may not provide the level of cover you’re looking for.
Need Help Choosing the Right Protection?
At JG Mortgage Services, we help people compare mortgage protection and insurance policies from a range of insurers. We’ll answer your questions, explain the cover available and help you choose a policy that suits your needs.
Whether you’re buying your first home, moving home or reviewing your existing cover, talk to one of our advisers to see how we can help.
FAQs
Can I take out mortgage protection insurance after my mortgage has started?
Yes. You don’t have to arrange mortgage protection when you take out your mortgage. You can apply for cover later, although your age and health may affect the premiums available to you.
Can I change my mortgage protection insurance if I remortgage?
Yes. Remortgaging is a good time to review your protection. You may decide to keep your existing policy, increase your cover or choose a different type of protection if your mortgage or circumstances have changed.
Does mortgage protection insurance cover pre-existing medical conditions?
It depends on the insurer and the condition. Some insurers may offer cover with exclusions, while others may charge a higher premium or ask for more medical information before offering a policy.
Can I get mortgage protection insurance if I’m over 50?
Yes. Many insurers offer mortgage protection to people over 50, although the cost and availability of cover will depend on your age, health and the type of policy you choose.
Does mortgage protection insurance cover both people on a joint mortgage?
It can. Some policies cover two people under a single plan, while others only cover one person. Check your policy documents to see how your cover works.
