What is mortgage protection insurance, and do I need it?
Want to protect your finances as a mortgage holder? Here we examine how mortgage payment protection insurance (MPPI) works and how it compares to life insurance, income protection and critical illness cover, and how much it costs in the UK.
Mortgage protection insurance acts as a safety net to cover your monthly mortgage repayments if you can no longer afford them due to various circumstances.
Having the right protection in place can prevent you from having to default on your mortgage and avoid the repossession of your home.
But is this type of protection right for you, or are there better options available?
We reveal how mortgage protection insurance works and what to consider.
Mortgage protection insurance is a type of policy that helps pay your monthly mortgage repayments if you can’t work due to illness, a serious injury or redundancy.
Monthly premiums are normally around £20 to £25, but you could find a deal starting at around £5 a month.
There are three main types of mortgage protection insurance, which cover different circumstances.
Mortgage protection insurance isn’t compulsory, but you should think very carefully about how you will keep up mortgage repayments if you find yourself out of work.
The best way to find the right kind of protection for your mortgage repayments is to ask a mortgage broker.
What is mortgage protection insurance?
Mortgage protection insurance is a type of policy that helps pay your monthly mortgage repayments if you can’t work due to illness, a serious injury or redundancy. Sometimes it’s called mortgage payment protection insurance (MPPI).
Mortgage protection insurance can be a good-value way to help cover short-term financial shocks such as redundancy or ill health.
However, it’s important to remember that it will only cover you for a limited period, typically 12 to 24 months.
Because of the time limit, it’s often cheaper than other types of insurance, such as critical illness cover or income protection, which pay out over longer periods.
If you’re not sure what type of cover to buy, then it’s worth speaking to a financial adviser who can help you find the right policy for your specific needs.
Here are the main features of mortgage protection insurance:
| Feature | How it works |
|---|---|
| When? | Pays out after you’ve been out of work for a specified period - generally at least 30 days but can be up to 180 days |
| How much? | Pays out a set amount each month. Eg. You may be able to get cover for your bills, too, which could mean the provider will pay 125% of your mortgage |
| How long? | You’ll only receive payments for 12 months to 24 months or until you return to work, depending on the policy |
| Exclusion period | When you take out a policy, there is usually an exclusion period of between 30 and 180 days before you can claim |
Mortgage protection insurance isn’t the same as payment protection insurance (PPI), as it just covers mortgage repayments rather than general debt, and if you need to claim, the payments come directly to you rather than the lender.
How much does mortgage payment insurance cost each month in the UK?
Monthly premiums are normally around £20 to £25, but you could find a deal starting at around £5 a month, depending on your circumstances and how much cover you need.
Your premiums are calculated based on your circumstances, including your age, salary, mortgage repayments and your job.
For example, if you’re in a desk-based job, you're at a lower risk of serious injury than if you do manual labour, which will help bring your payments down.
As with all types of insurance, the higher your level of coverage, the more the premiums will cost.
You’ll also pay more for a shorter waiting period or a wider range of scenarios that could stop you from being able to work.
Also, more expensive are ‘back-to-day-one’ policies, as these backdate payments cover you from the date you stopped working rather than from the date of your claim.
Here's a quick summary of the main things that can influence what you pay for mortgage protection insurance:
| Factor | How it affects cost |
|---|---|
| Age | Older applicants usually pay higher premiums |
| Job type | Manual or high-risk jobs increase costs compared to desk-based work |
| Level of cover | More coverage (e.g. covering bills as well as mortgage) = higher premiums |
| Waiting period | Shorter waiting periods = higher premiums |
| Policy type | Back-to-day-one policies are more expensive as they pay from the first day you can’t work |
What are the different types of mortgage protection insurance?
There are three main types of mortgage protection insurance, which cover different circumstances:
| Types of cover | How it works |
|---|---|
| Unemployment | These policies only pay out if you can’t work due to redundancy |
| Accident and sickness | These policies will cover you if you can’t work because you’ve become seriously ill or have had an injury |
| Combined | These type of policies also exist that cover both unemployment and accident or sickness |
Some providers will cover self-employed people, but you may need a mortgage broker to find these more specialist policies.
Do I need mortgage protection insurance?
Mortgage protection insurance isn’t compulsory, but you should think very carefully about how you will keep up mortgage repayments if you find yourself out of work for a while.
You might choose to do this using mortgage protection insurance or another method.
Several alternatives exist that cover more than your mortgage and may provide better overall protection and value for you, depending on your circumstances.
These are:
Income protection vs mortgage protection: what's the difference?
Income protection is far more comprehensive than mortgage protection.
It covers a portion of your salary, rather than just your monthly mortgage payments, and it usually pays you for longer than the MPPI limit.
Your policy may even cover you until you go back to work or retire.
The trade-off, of course, is the higher cost of the premiums. But it can be invaluable, especially for people in high-risk jobs, as this example shows.
Critical illness cover vs mortgage protection: what's the difference?
Critical illness cover pays you a lump sum if you get a serious illness that stops you from working. It is usually offered alongside life insurance.
Only certain illnesses are covered, though, and it won’t cover you for an injury or redundancy.
Life insurance vs mortgage protection: what's the difference?
If you have a joint mortgage, your lender may require you to take out life insurance.
It pays out a lump sum or instalments if you die, so the person sharing the mortgage with you and other dependents can cope financially.
This type of life insurance is usually known as ‘decreasing’ as your cover and premiums go down as your outstanding loan shrinks.
Do I need life insurance for a mortgage?
Life insurance isn’t designed to replace mortgage protection insurance, as it won’t cover you for unemployment or redundancy.
You might like to take out both life insurance and either mortgage protection or income protection to cover each scenario.
How do I choose mortgage protection insurance?
The best way to find the right kind of protection for your mortgage repayments is to ask a mortgage broker.
This mortgage adviser can also help you access more providers, so that you can find cheaper policies or more comprehensive, tailored insurance.
Even if you have mortgage protection insurance, you’ll still need an emergency savings pot alongside.
Most policies have limitations, such as waiting periods, exclusions for certain conditions, and caps on payouts.
An adviser will be able to help you find the best policy and advise you on any small print that may affect a later claim.
For example, you might pay your premium for months, and the insurer decides against a payout because it determines that redundancies were already expected.
Like other income protection policies, your mortgage protection policy may not cover you for pre-existing conditions, especially if you have been unwell in the past year.
You may need a medical assessment if you’ve had any health problems.
Is mortgage protection insurance worth it?
Whether mortgage protection insurance is worth it depends on your circumstances and what level of risk you're comfortable carrying yourself.
Its main appeal is cost. With cover typically running for 12 to 24 months, premiums are usually lower than income protection or critical illness cover, making it a reasonably affordable way to guard against short-term shocks like redundancy or illness.
However, the time-limited payout means it won't help if you're out of work for longer, and policies often come with exclusions, waiting periods and payout caps that can catch you out at claim stage.
If you're in a high-risk job or want cover that extends until you return to work or retire, income protection may offer better value despite the higher cost, while critical illness cover or life insurance might suit you better if your main concern is serious illness or providing for dependents.
Given these trade-offs, it's worth speaking to a financial adviser or mortgage broker who can weigh up your job, health and finances before recommending the right type of cover, and you should keep an emergency savings pot regardless of which policy you choose.
Get expert mortgage protection insurance advice
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Did you find this article helpful? Then you may find our articles on improving your chances of getting a mortgage and what to do after a mortgage application is declined useful.
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