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Mortgage Protection
Charlie Huxley explains your mortgage protection options.
What is mortgage protection insurance? How does it all work?
Mortgage protection is a type of life insurance designed to pay off your mortgage if you die before the loan is fully repaid. It can also cover you if you become seriously ill or lose your job, depending on the policy.
You’d usually take out a policy that matches the length of your mortgage term – say 20 or 25 years. If you unfortunately pass away during that time, the insurance pays the remaining mortgage balance directly to the lender. It means your family can stay in your home without worrying about the mortgage.
What are the different types of mortgage protection available in the UK?
In the UK, there are several types of insurance that can help protect your mortgage, or yourself, if something unexpected were to happen.
The most common one is mortgage life insurance. This pays off your mortgage in full if you were to pass away during the term of the policy. It gives your family the security to stay in the home without any financial pressure.
Second is critical illness cover. This pays out a lump sum if you were to be diagnosed with a serious illness like cancer, a heart attack or stroke. That money can be used to pay off the mortgage or help with treatment and living costs.
Thirdly, there’s income protection insurance. This provides a regular income if you’re unable to work due to illness or injury. It helps you keep up with mortgage payments and other bills until you’re able to return to work.
A fourth option to consider is family income benefit. Instead of a lump sum payment, this pays a monthly income to your family if you pass away during the term of the policy.
It can help cover mortgage payments and other living expenses over time.
What are the benefits of having mortgage protection?
In short, it offers peace of mind by making sure your home is protected if life takes an unexpected turn.
Mortgage protection is about security, stability and protecting the roof over your head, no matter what comes your way.
Do I need mortgage protection if I already have life insurance?
If it fits within your budget, it’s a good idea to have both policies in place. It does depend on your situation, as all clients have different needs and circumstances.
Mortgage life insurance will pay your mortgage off. Straight life insurance will pay a lump sum to your loved ones, so they can choose how to use that money. Would your life insurance payout be enough to clear the mortgage and support your family?
These are the questions all brokers should explore with their clients. If not, then mortgage protection could be a really useful extra layer of cover.
What factors should I consider when choosing a mortgage protection insurance policy?
When choosing a mortgage protection policy, it’s important to consider the type of cover you need, to make sure it all aligns with your mortgage term and financial goals.
Check the amount of cover is enough to pay off the mortgage or support monthly payments. At Huxmor, we’ll compare the market for you to recommend the most suitable cover.
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Can I get mortgage protection insurance if I have a pre-existing medical condition?
Yes, you can, but there are few important things to keep in mind. Insurers will assess your medical history to understand the level of risk. This might include details of your diagnosis, how long ago the symptoms occurred, how well the condition is managed and whether you’re on any ongoing treatment.
Depending on these points, your cover may proceed at a standard price while covering your existing condition. Or, it could have slightly increased premiums or exclude the pre-existing condition altogether.
It just really depends on the situation. Everyone’s different. Again, this is a good reason to talk to a broker, as we will recommend the providers that can actually help.
Are there any exclusions or limitations to mortgage protection insurance policies?
Mortgage protection policies do come with exclusions and some limitations. It’s important to understand these before taking out the policy.
Some policies may exclude pre-existing medical conditions, especially if you’ve had symptoms or treatment within the last 12 months. Claims related to self-inflicted injuries, alcohol or cosmetic surgery are usually not covered.
How long does mortgage protection coverage typically last? Does this vary?
Life insurance coverage typically lasts for the same length as your mortgage term. The idea is simple – you’re covered for the full duration of your loan. So, if anything happens to you during that time, the policy can step in to help pay off the mortgage. Once the mortgage is paid off or the term ends, the policy also ends.
What happens if I can’t pay my mortgage due to unforeseen circumstances?
If you suddenly can’t pay your mortgage, the important thing is not to panic. Act quickly by contacting your lender and your broker. Lenders in the UK are required to treat you fairly and will offer help.
This is where income protection is so important, because it replaces your income if you have an accident or illness.
What is the cost of mortgage protection insurance and how is it calculated?
The cost is different for everyone, depending on age, health and the term of the cover you need.
If you’re a smoker or have pre-existing medical conditions, for example, the premium is likely to be higher than for a fit and healthy non-smoker.
Is mortgage protection insurance mandatory in the UK?
No, it’s not. It’s not mandatory and it’s not a legal requirement. However, many lenders would recommend it.
A good broker should certainly discuss protection with you as a client and provide all the options available to you. I personally think it’s a smart move for everyone to have cover in place, to keep their property and family protected.
Can mortgage protection cover more than just the outstanding mortgage amount?
Life insurance is designed to cover the mortgage if you die or become ill. If you want additional cover for you and your family, an additional policy can be put in place over and above the mortgage balance. That’s probably what I’d recommend.
Can mortgage protection help with other financial obligations besides the mortgage?
Mortgage protection does what it says on the tin. The payout usually goes straight to the lender to clear the mortgage.
However, if you take out a more flexible policy, like an additional life insurance or income protection, the payout goes to you or your family. That means you can use that money for anything you need.
Standard mortgage protection is focused solely on the mortgage, but with the right type of cover, you can protect more than just your home.
What are the alternatives to mortgage protection insurance?
You can have other policies to protect your income if you have an accident or illness. This would be paid on a monthly basis to replace your net salary or net income. It can pay all the way through until retirement age.
There’s also another type of policy called family income benefit, which pays your family a replacement of your income if you die. This would support your family to keep the bills paid and avoid selling the property.
These alternatives are really important and we do often recommend them to our clients.
You’ve demonstrated how a mortgage broker can help. Have you got anything else to add?
I think we’ve covered a lot of good stuff here. We’re passionate about this here at Huxmor, and it’s really important.
It’s a real advantage to have a broker steer you through this. It can be quite hard to get to grips with all the different policies and providers out there on the market. A good broker will hopefully get you the right cover at a price to fit your budget. We make sure you’re covered if something untoward was to happen.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.