What you need to know about mortgage insurance


Once you buy a property, your mortgage will most likely be your biggest monthly expense. It also carries the most serious consequences if, for any reason, you’re unable to make your monthly repayments. You could lose your home.

Mortgage insurance provides you with the cover to make your mortgage repayments if the worst happens.

Here we’ll take you through everything you need to know.

How does mortgage insurance work?

Mortgage insurance, also known as mortgage protection insurance, will pay you out a set amount each month to pay your mortgage if you’re unable to work.

Why might I be unable to work?

Unfortunately, sometimes the worst can happen, and you might find yourself out of work for reasons beyond your control such as illness, injury or redundancy.

Are there different types of mortgage insurance?

Yes, there are tiered policies to cover different eventualities.

These include:
– Unemployment only
– Accident & sickness only
– Unemployment, accident and sickness

The latter is, of course, the most comprehensive insurance package but will carry the highest premiums. If for example, you have unemployment only, you won’t be able to claim during time spent out of work due to sickness or injury.

How long will my mortgage insurance payout for?

It will always depend on your individual policy and the reason for your unemployment, but on average most policies payout for around 12 months.

How much does mortgage insurance cost?

There are a variety of factors that will be considered to determine the cost of your policy.

These include:
– Your salary
– Your age
– Your medical history

How much do mortgage insurance policies payout?

You’ll likely find you have a couple of options to choose from when you first take out your policy.

These include:
– Payments calculated on your salary – you’d typically receive up to 50% of your salary
– Payments calculated on your mortgage – the amount of your mortgage only
– Payments calculated on your mortgage plus bills – around 125% of the value of your mortgage

Is there anything else I need to know about mortgage insurance? 

Most mortgage insurance will feature the following:

– Exclusion Periods
– Waiting Periods

Exclusion periods mean that you won’t be covered the moment you take out the policy – you’ll likely have to wait a few months before you can claim.

This is in place to stop those who know they’re going to be made redundant retrospectively taking out a policy and claiming immediately.

Waiting periods mean you must be off work for a specified number of days (often between 30 – 180) before you can make a claim on your policy. The longer the waiting period, the lower the premium.

The choice you make will depend on several factors including any savings you may have in place or any packages you’re receiving or have received from your old employer, such as redundancy payments.

Should I take out mortgage protection insurance?  

You never know what the future may bring, so it’s always a wise move to take out insurance to cover you for all eventualities, especially if you risk losing your home.

Will lenders require me to have mortgage insurance?

Lenders don’t require you to have this insurance as a condition of your mortgage. However, it is important that you have provision to pay your monthly mortgage in the event you are unable to work as a result of an accident, sickness or unemployment.

How do I find the best deal for mortgage protection insurance? 

Often, you’ll be sold a mortgage protection insurance policy with your mortgage, however, you may well be able to find a better and cheaper deal elsewhere.

Comparison sites such as MoneySuperMarket or Compare the Market will be able to assist with finding the best available deals for your individual circumstances.