Mortgage Protection

Protect your largest investment

Mortgage Protection Insurance is designed to protect you and your family’s biggest purchase: your home.

Mortgage Life Insurance pays out a lump sum so your family can repay the outstanding mortgage if you died, easing financial stresses associated with mortgages for you and your loved ones in a worst case scenario of your death.

What Does Mortgage Life Insurance Cover?

Mortgage Life Insurance covers you for a variety of risks, including:

  • Death and Terminal Illness
    With Mortgage Life Insurance you can cover the amount outstanding on your loan should you pass away or are diagnosed as terminally ill (with less than 12 months to live), thus providing your family with the means of repaying the debt
  • Critical Illness
    If you add Critical Illness Insurance to your Mortgage Life Insurance policy, it will also pay out if you suffer one of the critical illnesses listed by your insurer.

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Do I Need Mortgage Insurance?

The threat of missing mortgage payments and losing your home is a risk that’s too often overlooked. Fortunately, Mortgage Insurance can reduce this worry.

In the 3 months leading to January 2022, there were just over 2.3 million people not looking for work due to long-term illness. The chances of debilitating illness or injury are more common than many people think and so most people caught by surprise by a health problem find themselves without proper financial support during their recovery.

Despite the average weekly earnings in 22/23 being £630, the Employment support Allowance offers a starter or typical income of only £67.20 per week. This means that relying on ESA alone (although other benefits are available) if you’re not working will result in a shortfall of income and could lead to difficult financial decisions.

What’s the Risk of Passing Away?

Similarly, the risk of death is often one that goes unconsidered and many bereaved families find themselves looking at additional hardship when it comes to keeping up with their finances.

While some families are able to rely on their savings to support themselves during this time, others may not have the luxury of doing so with as many as 34% of adults having no more than £1,000 in cash savings.

While some people may be capable of using their savings to keep up with their mortgage payments, that is clearly not a viable option for everyone.

In the table below we’ve outlined the risk of death for a health male of three different ages over the life of a 25 year mortgage.

Age 25 Age 35 Age 45
1 in 33 1 in 8 1 in 4

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Mortgage Protection Life Insurance

Mortgage Life Insurance is similar to a standard Personal Life Insurance policy with the exception that your cover is tied to your mortgage loan. It is designed to pay out a lump sum that can repay your mortgage in full if you pass away.

Mortgage Life Cover is intended to cover the entire cost of your mortgage loan, so it will usually pay out a lump sum large enough to pay off what is left of the loan in one payment.

Being tied to your mortgage, it is also typical that the policy’s end date is set as close as possible to the expected day that you pay off your mortgage.

Cover Types

There are two specific types of Mortgage Life Cover that you will need to choose from when taking out your policy. The type of covers are designed for different types of mortgages and so act differently while you have them.

Decreasing Term Life Insurance

If you have a principal repayment mortgage loan, Decreasing Mortgage Life Cover is usually the most suitable option. With such a plan, the level of cover declines over time aligning with the amount outstanding on your loan, eventually reaching zero at the end of your policy when you have officially paid off you mortgage.

One thing to be aware of when purchasing decreasing cover, however, is the decrease rate of your Mortgage Life Cover. If your benefit’s decrease rate exceeds the rate of your mortgage loan decrease, you may find yourself lacking in cover.

Level Term Life Insurance

If you have an interest-only mortgage a Level Term Insurance policy is usually the most suitable option. With this type of cover the level of protection remains fixed throughout the life of the plan to reflect the fact that you don’t have to repay the outstanding capital balance of the loan until the mortgage ends.

It’s usually the best option for those looking for a level of family protection over and above the mortgage loan, also, as the amount of cover doesn’t diminish over time.

Cover Options

Joint Life Cover

If you hold a mortgage together with another person and both contribute to the payments, it makes sense to protect both halves of the mortgage. This can be done by purchasing a Joint Mortgage Life policy. Joint cover will pay out your agreed benefit if either partner passes away before your mortgage has been paid off.

Be aware that most Joint Mortgage Insurance policies are Joint Life First Event, which means they’ll pay out when the first partner passes away and will end immediately after. As such, it may not be an ideal Life Insurance option if the people covered would like to leave something to their children in addition to paying off their mortgage because the policy would be over after the first claim.

Premium Types

There is more than one option when it comes to premiums and how your policy is priced, which is something to look out for carefully.

Guaranteed Premiums are fixed at the start of your policy and won’t change unless you adjust your cover.

Reviewable Premiums on the other hand are assessed regularly and adjusted according to what the insurer deems an appropriate price depending on how circumstances have changed in the wider world.

Depending on your personal circumstances, one premium type is likely to be better suited for you.

Guaranteed Premiums usually start out more expensive but are the more reliable option if you intend to have your policy for a long time and could work out cheaper over the life of the loan. Reviewable Premiums are usually cheaper at the start, but they can see unexpected price hikes and don’t typically have predictable increase rates.

Add Critical Illness Cover to Mortgage Life Insurance

With both Level and Decreasing Term Mortgage Life cover it is possible to add Critical Illness Cover, which will cover you if you are diagnosed with a critical illness or injury.

Unlike Income Protection, Critical Illness Cover will only pay out if you are diagnosed with a condition included on a pre-set list of health problems covered by your policy. On its own, it is not normally as effective as Income Protection when it comes to protecting your finances if you are unwell. You can find out more about this in our Income Protection vs Critical Illness guide.

Mortgage Life Insurance with Critical Illness Cover will cover you against death, terminal illness and critical illness. A policy will pay out if you pass away, if you are diagnosed with a terminal illness, or if you are diagnosed with a condition on your insurer’s pre-set list of critical conditions.

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How Much Does Mortgage Insurance Cost?

Given most mortgages are taken out on a joint basis we have provided cost examples for a couple who have just bought a house together where they took out a mortgage with a 25 year term to finance the purchase. We’ve assumed:

  • They are both healthy.
  • They’re both non-smokers
  • They both have low risk office based occupations
  • They’re looking for £250,000 worth of Decreasing Life Insurance over 25 years.
Age Joint Decreasing Life Insurance
30 Years Old £11.58 per month
40 Years Old £21.20 per month
50 Years Old £55.98 per month

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