Do I need mortgage insurance? Alternatives to mortgage insurance

Alternatives to mortgage insurance could be better value for money

Before deciding whether to take out mortgage insurance, look at what sickness benefits your employer offers you. You should also consider alternatives.

While mortgage payment protection insurance can be one of the cheapest ways to cover your mortgage, and won’t usually affect your state benefits, other types of protection insurance could give you better cover and better value for money.

Income protection insurance

One type of protection insurance is income protection (IP). This pays around 50% of your salary if you can’t work because of accident or sickness. Unlike most MPPI policies, it pays out until you can go back to work or reach retirement but does not cover unemployment. It is based on your circumstances so is more likely to pay out.

Another type of protection is critical illness insurance (CII), which pays a lump sum if you are diagnosed with a serious illness. But you should only take out CII in addition to income protection or mortgage protection insurance.

Visit our guide to protection insurance for more on alternative options.

And if you have dependents, make sure you have life insurance.

Government help

As well as state benefits, such as unemployment and support allowance and jobseeker’s allowance, there are government schemes designed to help you pay your mortgage if you can’t work.

These include the support for mortgage interest (SMI), homeowners mortgage support (HMS) and the mortgage rescue schemes. Visit our guide to mortgage debt for more on these.

Choosing mortgage protection

If you don’t have any other cover and can’t afford to take out income protection, a mortgage insurance policy could be worthwhile. Just make sure you look at all the exclusions and conditions carefully, especially for pre-existing medical conditions and if you are self-employed or a contract worker. There may also be conditions about how long you have been employed and how many hours a week you work.