Protection

Insurances to consider with a mortgage

Life cover, critical illness, income protection, buildings, contents and mortgage payment protection, the policies worth considering alongside your mortgage.

By Debbie Shepherd Published 19 May 2023 2 minute read
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What insurances to consider when taking out a mortgage

When you take on a mortgage there are several insurance policies worth considering, designed to protect you, your family and your investment. Here are the main types to think about.

  1. Life insurance. This policy provides financial protection for your dependants in the event of your death during the mortgage term. It can be used to pay off the outstanding mortgage balance, ensuring your loved ones can continue to live in the property.
  2. Critical illness cover. This insurance pays out a lump sum if you're diagnosed with a critical illness specified in the policy, such as cancer or heart disease. It can help cover mortgage repayments or any home modifications needed because of your illness.
  3. Income protection insurance. This policy provides a replacement income if you're unable to work due to accident, illness or disability. It ensures you can continue to make mortgage payments while you can't earn.
  4. Buildings insurance. Most mortgage lenders require you to have buildings insurance in place by exchange of contracts. It covers the cost of repairing or rebuilding your property if it's damaged by fire, flood, or other specified events. It's important to make sure the cover is adequate for the rebuilding cost of your home.
  5. Contents insurance. While not mandatory, contents insurance is highly recommended. It protects your personal belongings within the property, furniture, appliances, electronics, against damage or theft.
  6. Mortgage payment protection insurance (MPPI). MPPI is designed to cover your mortgage payments for a specified period if you become unemployed or are unable to work due to accident or sickness. It can provide peace of mind in case of unexpected financial difficulty.

When considering insurance policies, it's important to assess your individual circumstances, budget and risk tolerance. It's worth seeking advice from a qualified insurance professional or mortgage adviser who can guide you through the options available and help you choose the most suitable policies for your needs.

As with all insurance policies, conditions and exclusions will apply.

Frequently asked questions

Do I have to take insurance when I get a mortgage?

Buildings insurance is effectively required, as lenders insist the property is insured from exchange of contracts. Life cover and income protection aren't compulsory, but they're worth serious thought, because they protect your ability to keep the mortgage paid.

What's the difference between life insurance and income protection?

Life insurance pays out if you die, and with critical illness added, if you're seriously ill, helping clear or reduce the mortgage. Income protection replaces part of your income if illness or injury stops you working, keeping the payments going. Many people need a mix of both.

Is mortgage payment protection the same as income protection?

No, they're related but different. Proper income protection tends to offer longer and more comprehensive cover. It's worth understanding what each actually pays, and for how long, before deciding.

When should I sort protection out?

Ideally alongside the mortgage itself, so the cover is in place from the day you complete. Arranging it early also means you're insured before any change in your health could affect your options.

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