What is mortgage protection insurance?
Mortgage payment protection insurance (MPPI) is a type of income protection. It can cover the cost of your mortgage each month if you lose your job through no fault of your own or you’re unable to work because of a serious injury or illness.
If you need to make a claim, MPPI could pay you a set amount each month. This can be enough to cover your mortgage, or you can choose a policy that will pay out 125% of your mortgage costs to cover other bills too.
Most insurance policies that cover your mortgage will pay out for up to 12 months or until you return to work – whichever is sooner.
Do I need mortgage insurance?
If being out of work would make it difficult to meet your mortgage repayments, or if you’re self-employed and not eligible for sickness or redundancy pay, then mortgage protection insurance might be for you.
Mortgage protection insurance, also known as mortgage coverage insurance, acts as a safeguard if you can no longer afford your monthly repayments. Ultimately, it can save you from defaulting on your mortgage and losing your home.
How does mortgage protection insurance work?
If you found yourself unable to work for a reason covered by your policy, you should be able to claim. The pay-out amount will depend on the type of mortgage protection cover you choose. You can set how much you’d like your policy to pay out every month.
You may just want to cover the cost of your mortgage, but with some providers you also have the option to add an extra 25% to cover bills and other expenses too. Providers tend to set maximum limits of between £1,500 and £2,000 a month though.
If your claim is successful, you’ll need to wait 30-180 days for it to pay out (known as the ‘deferred period’). Choosing to defer payments for longer should make your premiums cheaper, but it’s important not to leave yourself too financially stretched during the break in income.
What does mortgage protection cover?
Different levels of mortgage payment protection insurance are available, depending on what you want to be covered for:
- Accident and sickness – this can cover your mortgage repayments if you’re unable to work because of serious illness or injury. But it won’t pay out if you lose your job.
- Unemployment – this will give you an income to cover your mortgage if you’re made redundant from your job. It won’t pay out for accident and sickness.
- Accident, sickness and unemployment – this gives you the most comprehensive cover as it protects both losing your job and not being able to work through serious illness or injury.
The cost of your cover is based on your personal circumstances, including your age, job, salary and mortgage repayments. If you’re a manual labourer, for example, you’re statistically more at risk of serious injury than someone with a desk-based job, so your premiums are likely to be higher.
MPPI can be for self-employed and contract workers as well as employed people, although there may be some exclusions you need to watch out for.
What doesn’t mortgage protection insurance cover?
As with all types of insurance, there are certain things you won’t be covered for when you take out a mortgage payment protection policy. These can typically include:
- Voluntary redundancy
- Prior knowledge of the risk of redundancy
- Getting sacked from your job
- Pre-existing medical conditions
- Stress or back-related injuries and illnesses (unless strict criteria are met)
- Self-inflicted injuries.
If you’re self-employed, it’s unlikely you’ll be able to claim for unemployment. That’s because you’re responsible for finding your own work and are not at the mercy of an employer.
Always read the policy details carefully to check what’s covered and what’s not before you take out mortgage protection.
Alternatives to mortgage protection insurance
Mortgage life insurance pays out a lump sum to cover your mortgage if you die within the term of the policy. This type of cover is often sold as ‘decreasing term insurance’, meaning the pay-out reduces as your mortgage debt reduces.
Critical illness cover could pay out if you are diagnosed with one of the serious illnesses the policy covers. However, the list of illnesses can vary between providers.
You might find that your employer will pay you sick pay, even for extended periods. But this is unlikely to be your full salary, so you may have a shortfall of income.
Income protection insurance should pay out a replacement income if you can’t work, usually due to illness or injury. There are different income protection insurance options available offering short and long-term cover. Rather than just protecting your mortgage payments, it could offer a vital safety net to cover bills and other living expenses too.Start comparing mortgage protection insurance
Frequently asked questions
Can I claim on my mortgage protection insurance straight away?
No. With unemployment insurance, there’s usually an exclusion period before you can claim on your insurance. This is to stop people from taking out insurance when they know they’re going to be made redundant.
Plus, all MPPI policies have an agreed waiting period between when you became unable to work and the time your pay-outs start. This is sometimes called a deferred period and will usually last between one and six months. You might want to choose a deferred period based on when your sick pay from your employer ends.
Does everyone with a mortgage need mortgage protection insurance?
Not necessarily. If you know you’re likely to get a large redundancy pay-out or your employer’s sick pay is very generous, you may not need it. You might also be covered under your health insurance policy if you have one, so check first.
You also might not need mortgage cover if you’re eligible for government benefits that’ll help you pay your mortgage. Be aware that these Support for Mortgage Interest (SMI) benefits only pay the interest on your mortgage.
Depending on your circumstances, there can be a delay of 39 weeks before the first SMI payment is made. They’re also a loan that you’ll need to pay back when you sell your home.
How can I compare mortgage protection insurance?
It’s easy with our comparison service. Just fill in a few details about yourself and the type of cover you’re interested in:
You’ll then see a page listing your quotes in price order, with the cheapest at the top. You can also select different tabs to see the different kinds of cover and how much they would cost.
What’s the difference between life insurance and mortgage protection?
Mortgage protection insurance is a type of income protection that will cover your mortgage payments if you’re out of work due to accident, sickness, or unemployment. Life insurance will pay out when you die or if you’ve been diagnosed with a serious illness that’s included in your policy. As these insurances pay out in different circumstances, you might want to consider both rather than thinking in terms of mortgage insurance vs life insurance.
Is mortgage protection insurance the same as payment protection insurance (PPI)?
Mortgage protection and payment protection are both types of insurance that cover a single specific debt. But that’s where the similarities end.
Mortgage protection insurance is specific to your mortgage, and pay-outs will be paid directly to you. PPI covers unsecured finance and pay-outs are paid to the lender rather than you.
Will being a smoker affect my mortgage protection quote?
You’re likely to pay higher premiums if you’re a smoker or vaper. This is because you’re deemed a higher risk, i.e. more likely to fall ill and make a claim.
Can I get income protection if I’m self-employed?
Yes – and because you don’t have the same rights in terms of sick pay as PAYE employees, it may be more important that you have the right cover in place. Income protection would help you keep up with your mortgage, monthly bills and other outgoings. Long-term cover is also available.
Find out why self-employed income protection matters.
Can I cover 100% of my income?
Income protection will usually cover 50-60% of your income, so you can still pay for rent or mortgage payments, your bills and employees’ salaries. The pay-out is just to ensure you keep your home and don’t have to worry about utilities or bankruptcy. You’ll need to self-fund any additional costs with savings.
Can I claim for time off work for mental health reasons?
Although mental health issues such as stress and anxiety are common reasons for needing time off work, it can often be quite difficult to claim for these types of conditions. You’ll usually need to provide evidence from a qualified psychiatrist that your mental health is making you unable to work.
Can I talk to someone about MPPI?
Yes. Our friendly advisors at Assured Futures are just at the end of the phone. Call Freephone 0808 141 1332.
How can I lower the cost of my mortgage protection insurance?
There are a few things you can do to reduce the amount you pay for mortgage protection insurance.
Check your employer’s sick pay
If you’re unable to work due to serious illness or injury, your employer may have a company scheme that entitles you to more than the statutory sick pay. This may cover your mortgage payments for a short period. You can then have a longer deferred period, which should reduce your premium.
Factor in your savings
If you have a substantial amount saved up, you might be able to cover your mortgage payments for a while. The less likely you are to claim, the lower your mortgage protection insurance will be.
If you have life insurance, you may have extended cover for mortgage protection
It's worth checking what you're already covered for before taking out another insurance policy. If you have life insurance, for example, you might already have critical illness cover included. This could help you pay off your mortgage if you’re diagnosed with a serious illness such as cancer or a stroke.
Compare mortgage protection quotes to find the right deal for you
The amount you’ll need to pay for mortgage cover depends on various factors, so make sure you compare different providers and different types of cover. We’ll get you a quote within minutes.
What do I need to get a quote?
You won’t need any specific documents to get a mortgage protection insurance quote, but we will need:
- Your basic details
- Annual income
- Monthly mortgage payments
- Employment details.
What our expert says...
“You never know what life is going to throw at you, so mortgage protection insurance can be a great safety net should you find yourself in a difficult situation. Make sure you find the right type of insurance for you, and avoid having lots of policies that may overlap.”
- Mubina Pirmohamed, Insurance expert