Why Mortgage Protection Matters
Your mortgage is likely your largest financial commitment, but life is unpredictable. Mortgage protection insurance ensures your family can keep their home even if you're unable to work due to illness, injury, unemployment, or death. This guide explains all the protection options available to UK homeowners.
The Statistics
1 in 4 UK adults will be off work for 4+ weeks due to illness before retirement | Average mortgage balance at time of claim: £180,000 | Only 25% of mortgage holders have adequate protection coverage
Types of Mortgage Protection
Life Insurance
Pays out a lump sum if you die, ensuring your mortgage is paid off and family has financial security.
Critical Illness Cover
Provides a payout if you're diagnosed with a serious illness like cancer, heart attack, or stroke.
Income Protection
Replaces a percentage of your income if you can't work due to illness or injury.
Unemployment Cover
Covers mortgage payments for a period if you lose your job through redundancy.
Life Insurance for Mortgages
Types of Life Insurance
Decreasing Term Life
Cover amount reduces in line with your mortgage balance. Cheapest option specifically for mortgage protection.
Level Term Life
Fixed payout amount throughout the term. Provides extra protection for family expenses beyond the mortgage.
Whole of Life
Permanent cover that pays out whenever you die. More expensive but provides lifelong protection.
Family Income Benefit
Pays regular income instead of lump sum, providing ongoing support for family living expenses.
| Policy Type | Best For | Typical Cost (£200k, 25yr) |
|---|---|---|
| Decreasing Term | Mortgage protection only | £15-25/month |
| Level Term | Mortgage + family protection | £20-35/month |
| Whole of Life | Inheritance planning | £80-150/month |
Joint vs Individual Policies
- Joint life policy: Covers both partners, pays out once (cheaper premium)
- Individual policies: Each person covered separately (pays out twice if both die)
- Recommendation: Individual policies for better protection, especially with children
- Cost difference: Individual policies typically 10-15% more expensive
Critical Illness Cover
What's Covered
Critical illness insurance pays out if you're diagnosed with one of the specified conditions:
Most Common Claims
Cancer (45% of claims): Most cancers covered after diagnosis | Heart Attack (15%): Specific severity criteria apply | Stroke (12%): Must result in permanent symptoms | Multiple Sclerosis (8%): Definite diagnosis required
Coverage Options
- Full critical illness: Covers 40+ conditions with full payout
- Budget options: Cover fewer conditions but lower premiums
- Children's cover: Extends protection to dependent children
- Partial payouts: Some policies pay smaller amounts for less severe conditions
Considerations
Important Limitations
Pre-existing conditions typically excluded | Survival periods (usually 14-30 days) apply | Definitions can be strict - read policy wordings carefully | Some occupations may face exclusions or higher premiums
Income Protection Insurance
How Income Protection Works
Income protection replaces a percentage of your salary if you can't work due to illness or injury. Unlike critical illness, it covers any condition that prevents you from working.
Benefit Period
Choose how long payments continue: until specific age (60/65), fixed period (2/5 years), or until recovery.
Deferred Period
Waiting time before payments start: 4 weeks to 2 years. Longer deferrals = lower premiums.
Coverage Amount
Typically 50-70% of gross income. Cannot exceed actual earnings to prevent over-insurance.
Definition of Incapacity
"Own occupation" (can't do your job) vs "any occupation" (can't do any suitable work).
Cost Factors
Example Premiums (Monthly)
£30,000 income, £1,500/month benefit:
Age 30: £25-45/month | Age 40: £35-65/month | Age 50: £60-110/month
Factors affecting cost: Age, health, occupation, smoking, benefit period, deferred period
Mortgage Payment Protection Insurance (MPPI)
What MPPI Covers
MPPI is designed to cover your mortgage payments if you can't work due to accident, sickness, or involuntary unemployment.
| Coverage | Typical Benefit Period | Typical Cost | Key Restrictions |
|---|---|---|---|
| Accident & Sickness | 12-24 months | £4-8 per £100 covered | Pre-existing conditions excluded |
| Unemployment | 6-12 months | £2-4 per £100 covered | Must be involuntary redundancy |
| Combined Cover | 12-24 months | £6-12 per £100 covered | Various exclusions apply |
MPPI vs Other Protection
When MPPI Makes Sense
Short-term protection needs | Can't get individual income protection | Want unemployment cover specifically | Temporary coverage while building emergency fund
MPPI Limitations
Expensive compared to alternatives | Many exclusions and conditions | Limited benefit periods | No cover for self-employed in many cases | Age restrictions (typically 18-65)
Building Insurance vs Life Insurance
Buildings Insurance (Mandatory)
Required by all mortgage lenders, buildings insurance protects the physical structure of your home:
- What's covered: Fire, flood, theft, storm damage, subsidence
- Rebuild value: Must cover full cost to rebuild (not market value)
- Typical cost: £150-400 annually for average UK home
- Excess: Usually £100-500 depending on claim type
Contents Insurance (Optional but Recommended)
- What's covered: Personal belongings, furniture, electrical items
- Types: New for old vs indemnity (depreciated value)
- Accidental damage: Optional extra for additional protection
- Away from home: Coverage for items outside the property
Calculate Your Protection Needs
Use our calculators to determine how much life insurance and income protection you need to secure your mortgage and family's future.
Protection CalculatorsChoosing the Right Protection
Protection Priorities by Life Stage
Life Stage Protection Strategy
First-Time Buyers (25-35)
Priority: Life insurance, buildings insurance. Consider basic critical illness if budget allows.
Young Families (30-45)
Priority: Comprehensive life insurance, income protection, critical illness cover. Consider family income benefit.
Peak Earners (45-55)
Priority: Income protection, life insurance review, consider whole of life policies.
Pre-Retirement (55+)
Priority: Reduce term insurance, build savings, consider inheritance planning.
Budget-Based Recommendations
Tight Budget (£20-40/month)
Decreasing term life insurance covering mortgage balance. Basic buildings insurance.
Moderate Budget (£40-80/month)
Level term life insurance + basic critical illness or short-term income protection.
Comprehensive (£80+/month)
Level term life + critical illness + income protection. Family income benefit for dependents.
Getting the Best Deals
Shopping Around
- Comparison websites: Good starting point but may not show all providers
- Insurance brokers: Access to whole market including specialist insurers
- Direct from insurers: Sometimes offer online discounts
- Through mortgage lender: Convenient but often more expensive
Factors Affecting Premiums
Premium Factors You Can Control
Lifestyle: Stop smoking (huge impact), maintain healthy BMI, limit alcohol consumption
Occupation: Some jobs are higher risk - consider career impact
Hobbies: Dangerous activities may increase premiums or be excluded
Medical Underwriting Tips
- Be honest: Non-disclosure can void your policy
- Timing: Apply when healthy - pre-existing conditions limit options
- Medical screening: Larger policies may require medical exams
- GP records: Insurers can request full medical history
Policy Management
Regular Reviews
Your protection needs change over time. Review your policies:
- Annually: Check coverage levels and beneficiaries
- Major life events: Marriage, children, job changes, house moves
- Mortgage changes: Remortgaging, overpayments reducing balance
- Income changes: Salary increases/decreases, career changes
Making Claims
Claim Success Tips
Notify insurer immediately when aware of potential claim | Keep detailed medical records | Follow all insurer requirements | Get professional help for complex claims | Don't assume claim will be rejected
Common Claim Issues
- Non-disclosure: Failure to reveal relevant medical history
- Definition disputes: Whether condition meets policy criteria
- Occupation changes: Working in different role than when applied
- Premium payment: Missed payments can void policies
Alternatives to Insurance
Emergency Funds
Building savings can be an alternative or complement to insurance:
- Target amount: 6-12 months of essential expenses
- Accessibility: Easy access savings accounts or cash ISAs
- Pros: No monthly premiums, money remains yours
- Cons: Takes years to build, may not cover major events
Employer Benefits
Check Your Employee Benefits
Many employers provide death in service (typically 3-4x salary), group critical illness cover, or income protection. These may reduce your additional insurance needs.
State Benefits
- Statutory Sick Pay: £109.40/week for up to 28 weeks
- Employment Support Allowance: For long-term sickness
- Universal Credit: May help with housing costs
- Support for Mortgage Interest: Limited help with mortgage payments
Tax Considerations
Tax Treatment of Premiums
- Life insurance: No tax relief on premiums
- Income protection: Personal policies - no tax relief
- Employer-paid premiums: Usually treated as taxable benefit
- Self-employed: May claim income protection as business expense
Tax on Payouts
- Life insurance: Generally tax-free to beneficiaries
- Critical illness: Tax-free payout
- Income protection: Personal policies - tax-free income
- Employer schemes: May be subject to income tax
Inheritance Tax Planning
Life insurance can be written "in trust" to keep payouts outside your estate for inheritance tax purposes. Seek professional advice for complex estate planning.