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Mortgage protection insurance

Alternatives to mortgage protection insurance

By Marie Kemplay

Article 2 of 2

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Alternatives to mortgage protection insurance

Mortgage protection insurance isn’t your only option. Find out if income protection, critical illness cover or life insurance could be better for you.

With mortgage protection insurance, you pay a monthly premium to ensure that, if you are made redundant or have a long-term illness or injury that prevents you from working, your monthly mortgage payments are covered for a certain time.

This sounds great, but it's not without its disadvantages - to learn more, read our guide to mortgage protection insurance. Below, we outline the alternatives.

Other types of protection insurance

Income protection

Income protection pays around 50% of your salary if you can’t work because of an accident or sickness. 

It will pay out for a longer period than mortgage insurance, for example until you can go back to work or reach retirement.

The downside to this kind of insurance is that it will pay out only if you can't work owing to a medical condition - it doesn't cover redundancy.

Income protection is a more effective way of insuring against ill health than mortgage protection insurance, as you're medically assessed when taking out the policy and will know in advance what you will and won’t be covered for.

However, it also tends to be more expensive than mortgage protection insurance.

Critical illness cover

Critical illness insurance pays a lump sum if you're diagnosed with a serious illness, but it will not provide a regular income.

Life insurance

Life insurance is not really an alternative to mortgage protection, but is worth considering if you have dependants. It will pay out a lump sum in the event of your death. 

You can opt for the lump sum to be enough to cover the cost of your total outstanding mortgage debt. 

Which? Mortgage Advisers recommends using Lifesearch to find the right life insurance. For more information you can call 0808 252 7987.

Employee benefits

Before you take out any new protection insurance, check whether there are any arrangements already in place with your employer. Some companies will continue to pay your salary, or a proportion of it, for a set period if you need to take time off owing to illness. You may also be covered by protection insurance from your employer.

Government help

If you become unemployed you may be able to get state benefits, such as jobseeker's allowance or employment and support allowance.

If you're eligible for these benefits, you may also be able to apply for the Support for Mortgage Interest scheme (SMI). Under the scheme, your lender will receive payments from the government covering all or part of the interest on the first £200,000 of your mortgage at the Bank of England’s published monthly average mortgage interest rate. 

These payments will not cover the capital and will only be paid for up to two years if you're claiming in addition to income-related jobseeker's allowance. Visit gov.uk for more information.

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

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