Mortgage Protection Insurance – do I need it?

By Jennifer Harrison, Content Lead

If you are a homeowner in the UK, or are in the process of becoming one, you’ve more than likely heard of mortgage protection insurance. But what exactly is it, and do you need it? In this blog, we’ll explore everything you need to know about mortgage protection insurance, including how it works, how to get it, and whether or not it’s worth the cost.

What is mortgage protection insurance and what does it cover?

If you’re like most people, then your mortgage is likely to be your biggest monthly outgoing, and it will still need to be paid even if you’re unable to work.

Where mortgage protection is concerned, there are two main options:

Mortgage payment protection insurance

Mortgage protection insurance is a type of insurance policy that helps you pay your mortgage if you’re unable to make your monthly repayments due injury, illness, or redundancy. It is designed to provide financial protection for homeowners who can’t work due to unforeseen circumstances. Here, any pay-outs must be used specifically towards your mortgage repayments.

Once you’ve been out of work for a specified period mortgage protection insurance typically covers the cost of your mortgage payments for a set length of time, typically around twelve months but this can change depending on the policy.

General income protection insurance

Income protection insurance is a type of insurance that provides a replacement monthly income if you are unable to work due to illness or injury. There are different levels of protection available including short-term or long-term cover and can last until you’re able to return to work. By covering your salary, not just your mortgage repayments, you may also be able to cover other outgoings such as bills and living costs.

You can opt to have either or both types of insurance in place, meaning the income protection insurance would start to pay-out once your mortgage payment protection payments stop.

Before you can make any sort of claim on your mortgage protection insurance, you’ll need to have been off work for a specified number of days, and this can range depending on your policy. If you’re looking for a cheaper policy, opting for a longer waiting period could be a good option for you, especially if your employer offers good sick pay or if you have savings that could cover your mortgage for a little while.

How Much Does Mortgage Protection Insurance Cost?

The cost of mortgage protection insurance will vary depending on factors such as your age, health, and the amount of coverage you need. The type of job you do will also impact your monthly premium. For example, if your job involves manual labour, you’ll be considered at higher risk of injury than someone in an office-based job, and so your payments are likely to be higher. You can also pay more for a higher level of coverage, or a ‘back-to-day-one policy’ which will backdate payments, so you’re covered from the day you initially stopped working, not the day you make a claim.

Do You Need Mortgage Protection Insurance?

Mortgage protection insurance isn’t compulsory. The decision to take out mortgage protection insurance ultimately depends on your personal circumstances and risk tolerance. If you’re likely to get a large redundancy pay-out, or have a health insurance policy that covers you, you may feel mortgage protection insurance is something you don’t need. However, it’s important to consider how you will keep up your mortgage repayments should you find yourself out of work for several months. Here are some factors to consider when deciding if mortgage protection insurance is right for you:

Your Financial Situation

If you have enough savings to cover your mortgage payments in case of an emergency, you may believe you don’t need mortgage protection insurance. However, if you are the main earner in your household or have high monthly mortgage repayments, mortgage protection insurance can be a valuable safety net should you need it.

Your Job

If you work in a high-risk job, you may be more likely to need mortgage protection insurance. If you become injured and are unable to work, it can be challenging to make your mortgage payments. Even if your employer offers more than the statutory sick pay, over a long period it’s unlikely to be as much as your regular salary and so there may be a shortfall – this is where mortgage protection insurance would be useful.

Your Family Situation

If you have dependents or a family that relies on your income, mortgage protection insurance can provide peace of mind knowing that your loved one’s housing situation will be taken care of in the case of an emergency.

How do I get mortgage protection insurance?

If you decide that mortgage protection insurance is the right option for you, there are a few steps you can take to get coverage:

1. Research Different Providers

Start by researching different providers and comparing their policies and prices. Look for providers that have good reviews and a strong reputation in the industry.

2. Determine Your Coverage Needs

Consider factors such as your mortgage amount, monthly payments, and any other expenses you would like to cover. This will help you determine how much coverage you need and what type of policy is best for you.

3. Apply for Coverage

Once you have chosen a provider and policy, you can apply for coverage. This may involve filling out an application and providing information about your health and financial situation.

4. Review and Update Your Policy Regularly

Reviewing and updating your policy regularly is important to ensure that it still meets your needs. As your financial situation changes, you may need to adjust your cover.

Speak to your mortgage broker

As with almost anything mortgage related, to find the deal and product that best suits your circumstances, we recommend speaking to a qualified mortgage advisor. Not only will they be able to find a product to fit your needs, they’ll also be able to offer you access to more providers to ensure you’re getting a good deal. Find your mortgage broker here.

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All information contained on this blog is for general information use only. It does not provide mortgage advice and should not be construed as being mortgage advice, which can be provided by your mortgage broker and advisor only.