Do I need mortgage insurance? Mortgage insurance basics

It's a good idea to protect your mortgage payments in case you can't work

For most people, your mortgage is your largest monthly outgoing. And, unfortunately, the need to pay it doesn’t end if you can’t work because of accident, sickness or unemployment. 

Under these circumstances, a mortgage insurance policy - known as mortgage payment protection insurance (MPPI) - is one way to take care of it, but it might not always be the best way.

At a time when rising numbers of people could find themselves having to fall back on mortgage protection as a result of unemployment, in 2009 the Financial Services Authority (FSA) found that some companies had been unfairly increasing premiums and reducing the amount of cover for existing policyholders.

Many borrowers cancelled their mortgage insurance policies as a result, leaving themselves unprotected.

An end to mortgage protection price rises

In early October 2009, the Financial Services Authority reached an agreement with mortgage insurance providers to stop this. Providers agreed to proactively refund any increases in premiums they made in 2009 by June 2010 and to reverse any reductions in cover. They also said they would reinstate policies where a customer cancelled within two months of a premium increase or a reduction in cover during 2009. 

Finally, they promised to freeze premiums for at least the rest of 2009. Providers have still been able to increase premiums since January 2010 but have to make sure that mortgage insurance contracts are clear about when premiums and cover levels can be varied.

We feel that mortgage protection insurance doesn’t offer real value to consumers unless the policy’s premiums are fixed for at least five years.