What is mortgage protection insurance?

Protection policies pay if you get very ill or die. They're often sold with a mortgage.

There are three main types of mortgage protection insurance.

With income protection the insurer covers some or all your regular income if you are too ill to work. 

This works well with a home loan as it covers regular commitments like mortgage payments. It pays for a set amount of time or until you are fit to work again.

Critical illness cover also pays if you fall very ill. 

Unlike income protection, you pay in a lump sum. The cost is set when you take out the policy.

Remember that the definition of critical illness can differ amongst providers. So check terms and conditions before you choose a provider.

Life insurance pays out to someone you nominate when you did such as a friend or family member. It gives them financial security if you are no longer around to support them. 

There are two main types of life insurance policy. 'Term life insurance’, which protects you for a set amount of years. And ‘whole of life insurance’, that lasts until you die.

Term life insurance can come as level and decreasing. Decreasing term insurance is best suited to a repayment mortgage. This is because the level of cover will fall as the mortgage balance does.

Whole life insurance will cost a lot more, as there’s a guaranteed payout at the time of death.

These products have nothing to do with ‘mortgage payment protection insurance’. This was often mis-sold with mortgages before the financial crisis.

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Do I need mortgage protection insurance?

Buildings insurance is the only insurance that lenders need you to have.

But people who work with mortgages feel that more people should protect themselves.

It's best to bring up your protection needs. Mortgage advisers may ask you if you’ve thought about insurance when you get a mortgage.

If something goes wrong and the broker is accused of not mentioning it, they may ask you to sign a disclosure. This is to say that you did not want mortgage protection insurance when the lender offered it. 

Nobody wants to think about falling ill or dying. So it’s harder to talk about protection than getting finance to buy your own home.

Where can I get mortgage protection insurance?

If you want mortgage protection insurance it’s best to speak to a specialist broker or independent financial adviser.

Advisers are best placed to compare the deals on the market. They'll also find what type of mortgage protection insurance you need and make sure it'd pay out if needed.

A mortgage lender may have partnerships with insurance brokers or providers. So you can go direct to them to check.

Trussle protection insurance

You can arrange your protection insurance through Trussle. 

We’ll offer you a free protection review when you speak to a mortgage adviser at Trussle to get your mortgage deal.

We can also give you a free protection review if you've recently got a mortgage and do not have protection insurance yet.

A review usually takes up to 30 minutes.

More about Trussle protection insurance

How much is mortgage protection insurance?

The premiums on mortgage protection insurance depend on many things.

Income protection can be as little as £10 a month, though most people pay more than £50 a month.¹

How much you pay depends on:

  • how much income you are covering

  • how long the policy runs for. It can run for a ‘term’ of a few years or be a ‘whole of life’ policy

  • the deferral period. This is how long you can wait before the insurance starts paying after you’re not working

  • indexation. This is if the money you get goes up with inflation

  • how long the policy will pay out for after claiming (with income protection)

If the cost of your policy stays the same over time, it’s known as ‘guaranteed premiums’. 

You can also take out policies where the amount you pay changes over time. 

Or have ‘reviewable premiums’, where the insurer can change its terms.

There are also policies that cost more as you get older, called ‘age banded premiums’.

Health and lifestyle

When deciding the cost of the policy, insurers will look at your health and lifestyle.

In theory, the younger and healthier you are the cheaper the policy will be. This is because it is likely you will not make a claim for a long time.

Smoking makes policies much more expensive due to its impact on your health. If you stop smoking for a year it could halve the cost of an income protection policy.²

The older you are the more premiums will cost. If you have pre-existing health conditions the policy may be more expensive. Or it might exclude those conditions.

Your job is also taken into account if it puts you at a higher risk. For example, if you work with heavy machinery it may be higher than if you work in an office.

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How much will the insurer pay out?

Income protection policies cover part or all your annual salary. Some insurers will let you cover up to 70%.³

With life insurance, most insurance companies let you cover part of your annual salary. This could be 6, 10, 15 or 20 times your annual salary.

The more you cover, the more the policy will cost. 

The typical payouts in 2018 were:

  • £70,925.83 for critical illness cover 

  • £81,268.78 for term life insurance

  • £4,740.14 for whole of life insurance 

  • £22,058.45 for income protection⁴

Some people think that insurers avoid paying out on claims, but this is not true.

In 2018, insurers paid 97.6% of protection claims. So as long as you take out the right policy there’s no reason to think an insurer will reject a claim on your policy.³

Can I renew or switch my insurance policy?

Renewing or switching a policy

If you hold a protection policy you might want to renew or switch after a few years. 

This will be more of a benefit if you’ve made some positive lifestyle changes such as giving up smoking. It could also be useful if the market has become more competitive. You can discuss this with your adviser.

Be careful as you get older as policies often become more restrictive as your health gets worse.

It may be best to stick with the policy you took out when you were younger and seen as less of a risk.

Speak to a specialist

Speak to an adviser if you want more information about protection insurance. Or if you're one of the many households in the UK that are not protected.

A specialist will be able to see which form of protection works best for you.

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