Is mortgage insurance really worth it?

27th August 2019

woman relaxed on sofa

If you’re about to get a mortgage, you’re probably wondering whether you need to take out mortgage insurance.

Before you make a decision, make sure you carry on reading as there’s lots of myths and misinformation out there.

According to research for Money Mail, more than three in 10 borrowers were told that life insurance was a legal requirement, and a further third said they were told they couldn't get a loan without it. (1)

Neither is true.

What is mortgage insurance?

With so many different types of mortgage insurance on the market, you’d be forgiven for feeling a bit confused.

The main one is Mortgage Payment Protection Insurance (MPPI), which can help you meet your repayments if you get ill or are made redundant, for instance.

There are three types of MPPI and they fall into two general categories. The first specifically covers your mortgage payments. The second is a more general income protection insurance policy that lets you use the payments for anything.

The three types of MPPI are:

  • unemployment only

  • accident and sickness only

  • accident, sickness and unemployment

Which insurance is compulsory?

There are lots of different types of insurance you can take out when you get a mortgage, but only one is compulsory.

And that’s buildings insurance.

What are the advantages of mortgage insurance?

While you don’t have to take out mortgage insurance, it’s still worth considering.

Mortgage insurance helps to protect loved ones. Having some form of mortgage life insurance offers peace of mind in case you pass away and leave a mortgage that still needs to be paid off. If you die, mortgage life insurance will help your dependents pay your remaining mortgage instalments.

Mortgage insurance can help when the chips are down. No one knows what’s around the corner. If you get ill or are made redundant, at least you’ll know your mortgage is covered. After all, missing payments is an absolute no-no.

What are the disadvantages of mortgage insurance?

In theory, there aren’t any disadvantages to protecting yourself from unforeseen circumstances, other than the cost of the insurance if you end up not needing it.

But...

You could be overpaying on your policy. If you take out mortgage insurance directly from your lender, you may pay more for a policy that’s available at a better rate elsewhere. So make sure you do your homework first to find the best deal.

The cost of mortgage insurance

The cost of mortgage insurance really depends on a number of factors.

They include:

  • age

  • marital status

  • health

  • occupation

If you’re younger, in good health and have what’s considered a ‘low risk’ job, your monthly insurance payment could be as low as £10.

“While mortgage insurance can make all the difference in a worst-case scenario, it’s down to you whether you feel you need it,” said Prakash Patel, a Trussle Mortgage Adviser.

“I’d strongly recommend getting a protection review at the very least to see what impact an unfortunate event would have on your finances, and what the cost would be for such insurance.

“A protection review identifies your protection needs and is carried out by an accredited protection adviser. The advice can be free, depending on who you go to.

“But remember, buildings insurance is mandatory, so make sure you shop around to get the right deal and that your policy starts on completion day.

“Or if you’re buying a leasehold flat, and your landlord’s responsible for arranging the building insurance, make sure it’s in place.”

Just to let you know, we don't yet offer mortgage insurance through our broker service.

Related article

Source:

1 - This is MONEY

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