Guide
What is mortgage protection insurance?
Mortgage protection insurance is a type of life insurance that covers your mortgage payments if something unexpected happens. If you become terminally ill, or pass away, it pays off the rest of your mortgage.
Mortgage repayments are a large monthly cost for most people. And without life insurance, you run the risk of losing your home if you were unable to make the repayments.
Let us break down what is mortgage protection life insurance and how it can help you.
Do you need mortgage protection insurance?
There are a few reasons why you might consider taking out mortgage protection insurance:
Having a partner or getting married - If you have a partner, consider whether their salary or your savings would be enough to pay the mortgage if something happened to you. With mortgage protection, your partner can keep paying the mortgage without worry.
Becoming a parent - If you have kids, mortgage protection helps ensure that your family can stay in the home if something happens to you.
When you don't need mortgage protection - You might not need mortgage protection if you are single, live alone, have no dependents
This is because your property could be sold to repay the mortgage if you passed away.
Do you need life insurance for a mortgage?
You don’t need life insurance when you take out a mortgage. The only type of insurance required when buying a house is building insurance, which protects your home from damage. But, it’s a good idea to check with your mortgage provider first, as they may have specific requirements.
While life insurance isn’t necessary for the mortgage itself, it can be very helpful. Life insurance ensures that your mortgage payments are covered if something happens to you.
This is especially important if you have family members or dependents who rely on your income to repay the mortgage. Having life insurance can give you peace of mind, knowing that your loved ones will be taken care of even if you are not there.
How much is mortgage protection insurance?
Mortgage protection insurance, also known as term life insurance, is a type of insurance tailored for people who have a mortgage.
The cost of mortgage protection insurance, known as premiums, can vary based on several factors. Here are some things that can affect how much you pay:
- Age: Older people may pay higher premiums because they are considered at greater risk.
- Income: Your income can help insurers understand your financial situation.
- Health: If you have health issues, your premiums might be higher.
- Type of job: The kind of work you do matters. Some jobs are considered higher risk than others, which can lead to higher premiums.
- Monthly mortgage amount: The more you owe on your mortgage, the more cover you may need.
- Lifestyle choices: If you smoke or have other risky habits, your premiums could be higher.
- Remaining mortgage balance: The amount still owed on your mortgage will also affect how much coverage you need.
Insurance companies may ask for additional details depending on the type of coverage you choose. It’s important to provide accurate information so they can give you the right premium.
The difference between mortgage life insurance and other products
Life insurance vs mortgage protection life insurance
Life insurance policies only pay out when you die or are diagnosed with a terminal illness. If you get sick or injured and can no longer work, you can look at supplementing your income with other types of insurance.
There are two types of life insurance:
- Term life insurance is a type of insurance policy that covers you for a fixed period or ‘term’ of years. Mortgage protection is a type of term life insurance. There are two types of term life insurance that can cover your mortgage: decreasing and level term life insurance.
- Whole of life insurance is a policy that lasts for the policyholder’s lifetime. If the policyholder dies, whole of life cover pays a lump sum to their family or beneficiaries.
Mortgage protection insurance vs income protection
If you get sick or injured and can’t work, income protection insurance will pay a part of your salary. These payments can go towards anything like your mortgage, childcare and living costs.
Mortgage protection insurance only covers the costs of your mortgage repayments. For this reason, income protection tends to be more expensive than mortgage protection.
Mortgage protection insurance vs critical illness cover
Serious or critical illness cover pays out a cash lump sum to you and your family if you become seriously ill. It usually covers illnesses like heart attacks, strokes and cancers.
Serious illness cover pays out one lump sum. Mortgage protection insurance pays out monthly. Serious or critical illness cover, unlike mortgage protection, doesn’t pay out if you die.
It's possible to combine these insurance options according to your requirements.
Need-to-know terms when buying mortgage protection insurance
Buying insurance can be confusing. Here are a couple mortgage protection terms explained:
- Exclusion period - this is the time between the start of your policy and when you’re able to make a claim. Different types of cover will have different exclusion periods
- Back-to-day-one policy - this is a policy that will pay out from the first day that you can’t work.
Vitality life insurance
Want to know more about life insurance or thinking about taking out a policy? Here are some of the benefits of taking out life insurance with Vitality:
- A brand you can trust - In 2023, we paid out 99.7% of life insurance claims.*
- Get a lower monthly premium upfront when you add Optimiser to your plan. Keep your premiums low when you stay active.
- Access to Vitality partner discounts and rewards.
- Get free no-obligation advice. Our advisers offer expert advice to help you make the right decisions.
Last updated: 25 November 2024
*Vitality Claims and Benefits Report, 2024
Relevant guides and articles
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What is income protection insurance?
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Income protection insurance covers your monthly salary if you get sick and can't work. Learn more about this type of cover.
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What is whole of life insurance?
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Whole of life insurance covers you for your entire life. It guarantees a payout to your loved ones when you pass away or become terminally ill.
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What is serious illness cover?
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Serious illness cover pays out a lump sum if you are diagnosed with a serious condition. The condition may not be life threatening, but it still impacts your life.
