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Mortgage Protection Insurance

Last updated: 24. 03. 2020

Closing in on a mortgage is simultaneously a great and fearful experience. It means you are the proud owner of a new home. It also means that you have committed yourself to monthly mortgage repayments. 

But what happens during times of financial difficulty when you can no longer make those payments? Perhaps you are made involuntarily redundant or you can no longer generate an income due to a sudden injury or illness? This is where mortgage protection can give you peace of mind so that you can continue to revel in the excitement of being a home or property owner. 

What is mortgage protection insurance?

In the event of loss of income, mortgage payment protection insurance (MPPI) will assist you with your outstanding mortgage so that you and your loved ones still have a place to call home.

In a scenario where you find yourself involuntarily unemployed or unable to work due to accident or illness, then this type of policy will ensure that your mortgage payments are still dutifully fulfilled so that you have a roof over your head while you make alternative arrangements. 

How does mortgage protection work?

A mortgage protection policy can cover your monthly repayments if you are unable to work. These payments will be covered in full barring that they do not exceed 65% of your gross annual salary. MPPI is available for both repayment (capital and interest) mortgages and interest-only mortgages.

Most mortgage insurance plans will cover your mortgage payments for 12 months to two years or until you return to work – whichever comes first. 

Some insurance providers will give you the option to request a payout of 125% of your mortgage costs. This way, the funds can be used to pay your mortgage and possibly other bills too.  

Do I need this type of cover?

If you suddenly stopped receiving your income due to being out of work, would you be able to afford to pay your mortgage? If your answer is no, then mortgage protection insurance is something worth investigating.

When it comes to bills, then mortgage repayments are generally the costliest. Statistically, they add up to around 18% of a combined household income each month, or 24% if you live in the city. With this in mind, it makes sense that one would want to put protective measures in place just in case you or your partner lost your source of income.

MPPI can especially be useful to you if you are self-employed. Self-employed individuals do not qualify for sick pay or redundancy packages, this means that you would be at a total loss of income if you could no longer perform your job. 

What’s covered by mortgage protection insurance?

The type of mortgage protection cover you choose will depend on your personal situation. When you purchase a mortgage protection policy, you can choose from three types of cover:

  1. Accident and sickness (which provides cover for your mortgage payments if you suddenly become ill or injured)
  2. Unemployment (which provides cover if you become redundant at work)
  3. Accident, sickness, and unemployment (this provides comprehensive cover that protects you in all scenarios where you can no longer cover your bills)

Choose the cover-type that you think best suits your lifestyle. For example, if you know that your company will give you a good redundancy pay-out, then you may not need to include the unemployment cover in your policy.

How much will mortgage protection insurance cost?

The cost of a mortgage protection plan will differ from person to person and depends on the following factors: 

  • Your age
  • Your health status (including any pre-existing medical conditions)
  • Your type of job
  • The pay-out you choose

Remember, you will need to give correct information about yourself when applying for a policy. If you give incorrect details, then your insurance provider may not pay out when you submit for a claim. 

Tips for Lowering the Cost of Your Mortgage Protection Insurance

If you are on a tight budget and need to reduce the MPPI that you are paying or have been quoted for, then you could possibly reduce the costs as follows: 

  1. Don’t go over the top. Do you really need the highest level of cover? Perhaps you have other types of insurance already in place. Or maybe you have enough savings to tide you over?
  2. Push back the payouts. If you extend the deferred period (the waiting period before you start receiving payments), then you may be able to lower your premiums. 
  3. Do an annual policy overview. Review your policy once a year to see if it is still working for you. Perhaps you find yourself with a good amount of savings in your bank account a few years down the line and you can afford to lower your level of cover?
  4. Compare quotes. There are so many different policy-types available and it is important to find the right choice for you at a price that you can afford. This means you should shop around before agreeing to a plan.

How can I compare mortgage protection insurance?

Comparing quotes is easy when you use our online insurance comparison tool. All you will need to do is fill in a few details about yourself (including whether you are interested in MPPI for unemployment only, accident and sickness, or accident, sickness, and unemployment). The process is simple and will only take a few minutes of your time. We will then source quotes for you and provide you with a comparison format that will help you to easily compare prices and services. 
Fergus Cole

Author: Fergus Cole

Fergus is a journalist specialising in the personal finance, energy and broadband sectors. He also has a passion for travel and adventure so tries to make the most of this in any spare time he gets.