What is mortgage protection insurance?

Mortgages

What is mortgage protection insurance?

By Marie Kemplay

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What is mortgage protection insurance?

Mortgage protection insurance covers the cost of your mortgage payments if you become unwell or lose your job. Find out if it's likely to be a good option for you. 

Your mortgage is probably your biggest monthly outgoing. If you were unable to work due to illness or redundancy, you'd still need to make your repayments or you'd risk losing your home. 

There are two main options for protecting yourself: you can either take out protection insurance specifically to cover your mortgage payments, or get general income protection insurance (where the payments you would receive could be used for anything).

Here we focus on mortgage protection insurance, but you can read more about income protection insurance in our comprehensive guide.

  • If you'd like advice from an impartial expert on the best mortgage for you, call Which? Mortgage Advisers on 0808 252 7987

What is mortgage protection insurance?

Mortgage protection insurance (also known as 'mortgage payment protection insurance' or simply 'mortgage insurance') will pay you a set amount each month, usually for a period of up to two years, if you are unable to work. 

There are three main types - unemployment only; accident and sickness only; and accident, sickness and unemployment. Unemployment policies will cover you only if you are made redundant. Accident and sickness cover will protect you if have a long-term illness or suffer a serious injury. 

There's some flexibility for you to determine how much your policy will pay out. For example, you can choose for the policy to cover just the cost of your mortgage payments, or the cost of other bills too. If you choose to cover the cost of other bills, providers will typically pay out 125% of your mortgage costs. 

You can also choose to base the cover on your salary. Providers will typically pay out up to 50% of your monthly salary. 

Premium costs vary depending on your circumstances, and factors such as:

  • your age
  • the cost of your mortgage repayments
  • what product features you opt for
  • what type of job you have.

How much does it cost?

The table below shows indicative costs for accident, sickness and unemployment mortgage protection insurance for someone earning the average UK salary (£27,456) and paying an average UK mortgage (£623) every month.

Mortgage protection costs: UK average
  Lowest quote Highest quote Average cost of quote
30-year-old £11.54 £33.64 £22.27
50-year-old £17.51 £37.09 £25.65
Table notes: quotes gathered from comparethemarket.com on 5 July 2016; results based on quotes from 13 providers. Policies include a 30-day waiting period. Average UK salary taken from the Office for National Statistics Family Spending: 2015 survey. Average monthly mortgage payment taken from the Office for National Statistics Annual Survey of Hours and Earnings: 2015.

 

The next table shows indicative costs for accident, sickness and unemployment mortgage protection insurance for someone earning the average London salary (£34,320) and paying an average London mortgage (£900) every month.

Mortgage protection costs: London
  Lowest quote Highest quote Average cost of quote
30-year-old £16.86 £48.60 £22.27
50-year-old £25.29 £48.60 £37.06
Table notes: quotes gathered from comparethemarket.com on 5 July 2016; results based on quotes from 13 providers. Policies include a 30-day waiting period. Average London salary taken from the Office for National Statistics Family Spending: 2015 survey. Average monthly mortgage payment in London taken from the Office for National Statistics Annual Survey of Hours and Earnings: 2015.

 

Mortgage protection features 

Exclusion periods

Most mortgage insurance policies will not cover you from the moment you take out the policy; it may be a few months before you're able to claim on it. This is known as an exclusion period, and these can vary between 30 days and 180 days. 

Unemployment cover is likely to have a longer exclusion period than accident or sickness cover. This is to stop people who know they are going to be made redundant from taking out policies.

Mortgage insurance waiting periods 

Before claiming, you will need to be off work for a specified number of days. This is known as the waiting period, or excess period, and can range from 30 days to 180 days. For example, if you stopped working on 1 September and the waiting period was 30 days, you could put in a claim on 1 October.

The longer the waiting period, the cheaper the policy is likely to be - so if your employer offers sickness benefits, or you have some savings you could rely on for a few months, you may want to take out a policy with a longer waiting period. 

'Back-to-day-one' policies

It's also possible to get policies that will pay out from the first day you're off work. These are known as 'back-to-day-one' policies. They will typically be more expensive than policies with a waiting period. 

All policies will pay you in arrears, though - so whether or not there is a waiting period, you would receive your first payment one month after your claim is accepted.  

Policy exclusions

Pre-existing medical conditions

If you have a pre-existing health problem, which you have experienced in the past 12 months, it's likely to affect your ability to get mortgage protection insurance. 

Some policies will provide no cover at all for pre-existing medical conditions, whereas others have strict criteria. For example, you won't normally be able to claim for time off due to a pre-existing condition if it recurs within 12 or 24 months (depending on the policy) of taking out mortgage insurance.

Mental health and back problems

You may have difficulty claiming for stress, depression or other mental health conditions - despite the fact that they're some of the most common reasons for needing time off work.

Back problems can be tricky to claim for as well - you may need to provide radiological evidence before your insurer will pay out.

There will be other medical exclusions and conditions, too, which you should check carefully before taking out a policy.

Occupations

Your occupation or the type of employment contract you have may affect the policy you can get. Most providers will now cater for self-employed people and a variety of occupations, but read the small print carefully to check you're not exempt - for example, if you're on a casual or fixed-term contract.

Alternatives to mortgage protection insurance

Before you decide to take out mortgage insurance, it's worth thinking about whether other forms of protection insurance may be better suited to your needs. Read more in our guide to alternatives to mortgage insurance.

  • Last Updated: July 2016
  • Updated by: Marie Kemplay

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