Yes, mortgage protection could be worth it if illness or injury stopped you from working, especially if you couldn’t keep up with bills. There are few different types of protection insurance that could help, from temporary measures like income protection to more permanent support via family income benefit. In this article, we’ll walk you through them all.
What is mortgage protection?
Mortgage protection can help you keep up with your mortgage payments if you’re no longer able to earn your usual income. The type of cover you choose will determine what it protects you against and how it pays out.
There are different policies available, from cover that helps with your monthly mortgage payments, to life insurance that could help your loved ones repay the mortgage if you pass away.
Is mortgage protection a legal requirement?
While you don’t legally need mortgage protection to get a mortgage, it’s a good idea to think about whether you’d benefit from having some cover in place.
Most lenders won’t insist on life insurance either. But, if you’d struggle to cover your mortgage payments and other bills without your usual income, having the right protection could help give you some peace of mind.
Types of mortgage protection
There are a few different types of protection to consider, and each one works a little differently.
Life Insurance
Life insurance can help your loved ones pay off the mortgage if you were to pass away during the policy term. There are two main types to know about:
Level term life insurance: the amount of cover stays the same throughout the policy.
Decreasing term life insurance: the amount of cover reduces over time, which can be useful if you have a repayment mortgage where the amount you owe also goes down.
Family Income Benefit
Family income benefit is designed to provide your family with a regular, tax-free monthly income if you pass away during the policy term. Some policies also include cover for terminal illness.
You can usually choose to pay your premiums monthly or annually for a set period. If you pass away, your family will receive regular payments to help replace some of your lost income and cover everyday costs.
Critical illness cover
Critical illness cover is a slightly different type of protection, designed to pay out a tax-free lump sum if you’re diagnosed with a serious illness covered by your policy.
You could use the money to cover your monthly mortgage payments, or even pay off your mortgage completely, depending on how much you receive.
Income protection
Income protection is designed to provide regular payments if you can longer work from illness or injury. You could use these payments to help cover your mortgage and other bills while you’re off work.
How much you receive and how long the payments last will depend on your policy.
What if you can’t pay your mortgage?
If illness, injury or losing your job meant you couldn’t keep up with your mortgage repayments, would you have enough money to cover them? It’s an important thing to think about before you find yourself in that situation.
Missing your mortgage payments mean you could fall into arrears, which can affect your credit history and make it harder to borrow money in the future. Plus, if you’re unable to reach an agreement with your lender to repay what you owe, you could eventually risk losing your home through repossession.
If you are an employee, you might be entitled to Statutory Sick Pay (SSP) if you can’t work due to illness. However, it could be much lower than your usual income and might not be enough to cover the costs of your mortgage repayments and other bills.
So, if you’re worried about keeping up with your repayments, don’t wait until you miss one to ask for help. Contact your lender or speak to a mortgage adviser as soon as possible to talk about your options and next steps.
How much do protection policies cost?
The cost of protection varies from person to person. Things like your age, job, health, whether you smoke and how much cover you want can all affect your monthly costs.
The type of policy you choose and how long you want it to last will also make a difference.
If you’re taking out cover with a partner, you’ll usually have the choice of a joint policy or two separate policies. A joint policy can be simpler and might cost less than two individual policies, but it’s important to check what happens when a claim is made and whether the cover is right for the both of you.
Use our protection tool to check your financial resilience and see if you could benefit from extra cover.
How to choose the right protection for your mortgage
Choosing the right protection starts with thinking about what you’d need help with if your income stopped or your family lost financial support.
Think about your income, savings, regular outgoings and who relies on you financially. This can help you work out what type of cover might be useful and how much you might need.
If you’re not sure where to start, a protection adviser can talk you through the options and help you find cover that suits your needs and budget.
Ready to chat? Our advisers are ready to call you back today. The first chat costs nothing and is totally free of obligation.
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Frequently asked questions
Not necessarily. Life insurance can help your loved ones pay off your mortgage if you die, but it won’t usually cover your repayments if your unable to work. Check what your existing policy covers before taking out additional protection insurance.
It could be, especially if you’d struggle to keep up with repayments without your usual income. The right policy could help ease some financial pressure if the unexpected happens.
Yes, it might be possible but your condition could affect the cover available and how much you pay. Some policies also exclude certain conditions, so check the terms carefully.
Critical illness cover pays a lump sum if you’re diagnosed with a condition covered by your policy. Income protection provides regular payments if illness or injury stops you working.
Life insurance pays out a lump sum, whilst family income benefit provides a regular tax-free income to help your family cover ongoing household bills and living costs.
It depends on the policy. Life insurance or critical illness cover might pay a lump sum you can use to repay your mortgage, while income protection and mortgage payment protection insurance are generally designed to help cover regular payments.