Buying a home or a buy-to-let property is likely one of the biggest financial decisions you’ll make. Alongside choosing the right mortgage, many UK homeowners and landlords ask: Is mortgage protection insurance worth it?
Mortgage protection insurance can cover your mortgage payments if life takes an unexpected turn – but is it right for you?
In this guide, we’ll explain:
- What mortgage protection insurance is
- How mortgage protection insurance works
- Who mortgage protection insurance might suit
- What mortgage types may be covered
- What to consider before buying mortgage protection insurance
- Alternatives such as income protection and life insurance
Whether you have a fixed-rate mortgage, variable-rate mortgage, residential mortgage, or buy-to-let mortgage, this guide will help you better understand your mortgage protection options.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is a policy designed to cover your mortgage payments if you’re unable to pay due to certain life events.
Depending on the mortgage protection insurance policy, it may cover situations such as:
- Redundancy or job loss
- Serious illness or injury
- Disability preventing you from working
- Death, where some policies combine protection with life insurance
This type of insurance aims to provide financial support towards your mortgage payments if you suddenly become unable to pay them yourself.
However, mortgage protection insurance policies vary, so it is important to check exactly what is covered, how long payments can continue and what exclusions apply.
What Types of Mortgages Can Mortgage Protection Insurance Cover?
Mortgage protection insurance can potentially apply to several different mortgage types.
| Mortgage Type | How Mortgage Protection Insurance May Help |
|---|---|
| Residential Mortgage | May help cover repayments on your main home if your income is affected by an eligible event. |
| Buy-to-Let Mortgage | May provide financial support depending on the policy and circumstances affecting your ability to meet repayments. |
| Fixed-Rate Mortgage | Your repayments usually remain fixed for an agreed period, and protection may help cover those payments if your income falls. |
| Variable-Rate Mortgage | Repayments can change with interest rates, so protection may help with mortgage costs during periods when your income is affected. |
Residential Mortgages
Mortgage protection insurance may be suitable for your main home mortgage, whether you have a fixed or variable interest rate.
Buy-to-Let Mortgages
Mortgage protection insurance may also be relevant for landlords with buy-to-let mortgages.
Rental income often contributes towards mortgage repayments, but landlords may still need to consider what would happen if their personal income or overall financial position changed.
Fixed-Rate Mortgages
With a fixed-rate mortgage, your mortgage payment usually remains the same for an agreed period.
Mortgage protection insurance can provide an additional financial safety net if you experience an eligible event that affects your ability to make those payments.
Variable-Rate Mortgages
Variable-rate mortgage payments can change depending on interest rates.
If payments increase while your income is also affected by illness, injury or redundancy, your household finances could come under additional pressure.
Is Mortgage Protection Insurance Right for You?
Whether mortgage protection insurance is worth it depends on your personal circumstances.
There are several important factors to consider.
1. Your Financial Situation
If you rely heavily on your income to pay your mortgage and have minimal savings, mortgage protection insurance can provide a valuable backup.
It can act as a financial safety net by helping to cover monthly mortgage payments if you experience an unexpected event covered by the policy.
Example
Jane, a first-time buyer in Manchester with a £150,000 fixed-rate mortgage, lost her job during the pandemic.
Her mortgage protection insurance covered her payments for six months until she found a new role, helping to reduce the financial pressure during that period.
2. Your Mortgage Type Can Influence Your Risk
Your mortgage type can influence how useful mortgage protection insurance may be.
If you have a buy-to-let mortgage, you might assess your protection needs differently because rental income will often contribute towards mortgage repayments.
However, if your tenants leave unexpectedly or your rental income drops, you may still need to consider how you would continue meeting your mortgage commitments.
If you have a variable-rate mortgage, increases in mortgage payments could also place additional pressure on your budget.
3. Your Existing Financial Safety Nets
Before buying mortgage protection insurance, consider what financial protection you already have.
This might include:
- Emergency savings
- Employer sick pay
- Employer redundancy benefits
- Income protection insurance
- Critical illness cover
- Life insurance
- Other existing protection policies
If you already have a substantial emergency fund or comprehensive income protection insurance, additional mortgage protection insurance may be less necessary.
Example
Tom, a landlord in Birmingham, had enough savings to cover six months of mortgage payments without income from tenants.
He decided to skip mortgage protection insurance but has since started considering it as an additional precaution.
What Does Mortgage Protection Insurance Typically Cover?
Mortgage protection insurance policies vary considerably.
Depending on the provider and policy, cover may include:
- Monthly mortgage payments up to a stated amount
- Payments for a fixed period, often 12 or 24 months
- Redundancy or involuntary job loss
- Illness or incapacity affecting your ability to work
- Critical illness, depending on the policy
- Disability, depending on the policy
- Some life insurance elements
It is essential to read the mortgage protection insurance terms carefully because not every event, illness or period of unemployment will necessarily be covered.
Mortgage Protection Insurance Coverage at a Glance
| Area | What to Check |
|---|---|
| Mortgage Payments | How much of your monthly mortgage repayment could be covered? |
| Payment Period | How long can the policy continue paying benefits? |
| Redundancy Cover | Does the policy cover involuntary redundancy or job loss? |
| Illness and Injury | Which illnesses, injuries or incapacity situations are covered? |
| Waiting Period | How long must you wait before payments begin? |
| Policy Exclusions | What situations are specifically excluded? |
| Eligibility | Are there restrictions based on health, age or employment type? |
| Maximum Benefit | Is there a maximum amount the insurer will pay each month? |
Things to Consider Before Buying Mortgage Protection Insurance
Before deciding whether mortgage protection insurance is worth it, review the following areas carefully.
Are You Eligible?
Some mortgage protection insurance policies may exclude people with certain pre-existing medical conditions or types of employment.
Eligibility requirements will vary between insurers.
Can You Afford the Premiums?
The monthly cost of mortgage protection insurance can vary depending on factors including:
- Your age
- Mortgage size
- Health
- Employment status
- Level of cover
- Length of cover
- Policy terms
You should weigh the monthly mortgage protection insurance premium against your household budget and other financial priorities.
What Are the Policy Exclusions and Limitations?
Mortgage protection insurance policies can contain important exclusions.
For example, some policies may not cover:
- Voluntary redundancy
- Certain pre-existing medical conditions
- Specific employment situations
- Self-inflicted injuries
- Events occurring during an initial exclusion period
Always check the terms and conditions before taking out mortgage protection insurance.
What Are the Alternatives to Mortgage Protection Insurance?
Mortgage protection insurance is not the only way to protect yourself against financial difficulties.
Other options include:
Income Protection Insurance
Income protection insurance can provide broader protection by replacing a percentage of your income if you are unable to work due to illness or injury, subject to the policy terms.
This income may then be used towards:
- Mortgage payments
- Household bills
- Utilities
- Food
- Other essential living costs
Life Insurance or Term Insurance
Life insurance can provide a lump sum if you pass away during the policy term, subject to the policy conditions.
The payout could potentially be used to repay some or all of an outstanding mortgage.
Emergency Savings
Building an emergency fund can provide another financial safety net.
Savings may help cover:
- Mortgage payments
- Household expenses
- Unexpected bills
- Short-term income loss
Mortgage Protection Insurance vs Other Options
| Protection Option | Main Purpose | How It May Help With a Mortgage |
|---|---|---|
| Mortgage Protection Insurance | Helps cover mortgage repayments after specified events | May contribute towards monthly mortgage payments |
| Income Protection Insurance | Replaces part of your income if you cannot work due to illness or injury | Income can potentially be used towards mortgage payments and other bills |
| Life Insurance | Pays a lump sum following death, subject to policy terms | The lump sum could potentially repay some or all of the mortgage |
| Critical Illness Cover | Pays a lump sum following diagnosis of a covered critical illness | Money could potentially be used towards the mortgage and other costs |
| Emergency Savings | Provides access to your own savings during financial difficulty | Savings may be used to continue making mortgage repayments |
Real-Life Example: When Mortgage Protection Made a Difference
Sarah and Mark took out a £200,000 fixed-rate mortgage on their family home in Leeds.
They both work full-time and have two children.
Sarah’s employer offered limited redundancy protection, but Mark’s did not.
They decided to take out mortgage protection insurance covering 12 months’ payments each in case of job loss.
When Mark was made redundant suddenly, the insurance policy helped cover their £1,000 monthly mortgage payment for almost a year while he searched for new employment.
The couple reduced the immediate financial pressure and were able to focus on their family and Mark’s job search.
When Might Mortgage Protection Insurance Not Be Necessary?
Mortgage protection insurance may be less important depending on your existing financial position.
For example, you may decide you need less additional protection if:
- You have substantial savings covering mortgage payments for six months or more
- You already have comprehensive income protection insurance
- You already have suitable critical illness insurance
- Your household has two stable incomes
- Your mortgage repayments are manageable even if your income temporarily reduces
- You already have sufficient employer benefits or other financial protection
However, every household is different.
You should assess whether your existing financial safety nets would realistically be enough if your income stopped or reduced unexpectedly.
Is Mortgage Protection Insurance Worth It?
For some UK homeowners, mortgage protection insurance can provide a useful additional financial safety net.
For others, existing savings, employer benefits, income protection insurance, life insurance or critical illness cover may already provide sufficient protection.
Whether mortgage protection insurance is worth it will depend on factors such as:
- Your monthly mortgage payment
- Your mortgage balance
- Your savings
- Your employment situation
- Your household income
- Whether you rely on one or two incomes
- Your existing insurance policies
- Your employer benefits
- Your mortgage type
- Your personal attitude towards financial risk
Mortgage protection insurance is therefore not a one-size-fits-all solution.
Final Thoughts
Mortgage protection insurance can be a useful tool to help protect your home and family during uncertain times.
It may be worth considering if you want an additional financial safety net against job loss, illness, injury or other covered circumstances affecting your ability to pay your mortgage.
Before making any decision, assess:
- Your personal financial situation
- Your mortgage type
- Your monthly mortgage repayments
- Your existing savings
- Your employer benefits
- Your current insurance policies
- Available alternatives
- Policy exclusions and limitations
Always read mortgage protection insurance product terms carefully and compare different cover options before making a decision.
Need Help Deciding Whether Mortgage Protection Insurance Is Worth It?
If you’re wondering whether mortgage protection insurance is right for you, or you want help reviewing your mortgage and insurance options, BSL Financials is here to help.
Our advisers can discuss your circumstances, mortgage commitments and available protection options so you can better understand which solutions may be suitable for you.
Get in touch today for a discussion about protecting your home and financial future.
This blog is for information only and does not constitute regulated financial advice.
