What Is Mortgage Protection Insurance, and Do I Need It?

Buying a home is one of the biggest investments you’ll ever make, and for most of us, that means taking on a mortgage. But what would happen if something unexpected meant you couldn’t keep up with your repayments? That’s where Mortgage Protection Insurance comes in.

Recent research from Royal London found that 8 in 10 homeowners with a mortgage don’t have income protection, and two-thirds have no cover at all should they be diagnosed with a critical illness. That means millions of homeowners are leaving themselves financially vulnerable if they are unable to work due to long-term illness or injury. 

What is Mortgage Protection Insurance?

Mortgage Protection Insurance (sometimes called Mortgage Life Insurance) is designed to help pay off your mortgage if you were to pass away before it’s fully repaid.

In simple terms, it’s a safety net for your home, giving you peace of mind that your loved ones wouldn’t be left struggling with the mortgage if the worst happened.

Depending on the type of policy you choose, it can also cover serious illness or income loss due to sickness or injury.

How Does It Work?

When you take out a policy, you choose:

• The amount of cover usually matches your remaining mortgage balance. 
• The length of the policy, often the same as your mortgage term.

If you were to pass away during that time, the insurance would pay out a lump sum to cover the outstanding mortgage. That means your family can stay in their home, mortgage-free.

What Does It Cover?

This depends on the type of policy you choose. The main options are:

• Decreasing Term Insurance – The payout reduces over time, in line with your mortgage balance. This is the most common and affordable option for repayment mortgages.
• Level Term Insurance – The payout stays the same throughout the term. This could suit those with interest-only mortgages or anyone wanting a fixed lump sum for extra security.
• Income Protection – This is normally determined by your annual provable income.  The provider will pay this benefit monthly (net), and it works out at around 60% if you are unable to work due to illness or injury after a specified waiting period, normally between 4 – 52 weeks and for either 24 months, 5 years or full term.  This gives you peace of mind that you can meet your monthly outgoings if you are unable to work due to illness or injury.
• Mortgage Payment Protection Insurance (MPPI) – This covers your monthly mortgage payments for a set period if you can’t work due to illness, injury, or redundancy.

Do I Really Need It?

That depends on your situation. You’re not legally required to have mortgage protection, but think about:

• Would your partner or family be able to keep up the repayments without your income?
• Would you want them to be able to stay in the home no matter what happens?
• Do you already have life insurance or protection through work?
  

If losing your income would make it difficult to cover the mortgage, then yes, mortgage protection could be a smart move.

How Much Does It Cost?

The cost varies depending on your age, health, mortgage amount, and the level of cover you choose. But it’s often more affordable than people think, and the peace of mind it provides is priceless.

An adviser can help you find the right type and amount of cover for your situation (and make sure you’re not paying for more than you need).

Your home is more than bricks and mortar; it’s where memories are made. Mortgage Protection Insurance helps safeguard that, ensuring your family’s home stays secure, even if life takes an unexpected turn.

If you’re unsure where to start, we can help you review your options and find the right cover for your needs.