There are several ways to ensure your mortgage gets paid if you stop being able to pay it. There’s short-term cover for monthly payments if you’re not working for a period. And there’s an option to insure a lump sum, to pay off the whole mortgage, or part of it, if you die.
Mortgage protection insurance can mean:
We’ll stick with “MPPI” when we’re talking about protecting regular payments for a period. And use “mortgage protection insurance” when we’re talking about cover for a lump sum (mortgage protection life insurance). While they both protect your mortgage, each has a different purpose.
This guide explains the differences between MPPI, life insurance and mortgage protection insurance. We explain what you need to know to help you decide the type of cover that could be right for you.
Important: Life insurance and mortgage protection policies have exclusions, limits and eligibility criteria. Whether a policy pays out depends on meeting the insurer’s terms and conditions and keeping up premium payments.
Life insurance pays out a lump sum to your loved ones if you die while the policy is active.
You pay a monthly premium to have it.
It’s not a legal requirement to have life insurance. However, some lenders may recommend or require suitable protection cover before approving a mortgage.
In any case, it’s worth considering if dependants who live in your home would struggle to pay the mortgage without your income.
Common types of life insurance are:
In both cases, the payout goes to your beneficiaries if you die, and they can use it as they see fit. If you stop paying the premiums, the cover stops.
For a quick guide to the different types of protection cover, check out our overview of protection types.
People who want cover for a repayment mortgage typically opt for mortgage protection insurance (also called decreasing term life insurance) and the term of the cover aligns with the term of their mortgage, such as 25 years. The amount of the payout drops as they pay off the capital in their mortgage, to mirror the amount of the debt. It’s generally cheaper than level term cover.
People with an interest-only mortgage might opt for level term cover, as the capital they owe stays the same until they pay it all off at the end.
The benefit of mortgage protection insurance is the peace of mind of knowing that if you died, the insurance payout would reduce the financial burden on your loved ones and help them to pay the mortgage and stay in the family home.
There’s more on mortgage protection insurance in our full guide. Below, we’ve compared it with other types of cover.
Source for premium costs: Legal & General sample quotes (2024). Premiums vary depending on factors such as age, health, smoking status, cover amount and policy term. These figures are illustrative examples only and may not reflect the price available to you.
Availability, eligibility, premiums and exclusions vary by insurer and policy. Cover may depend on factors such as age, health, lifestyle and medical history. Not all policies are suitable for everyone
With mortgage protection insurance, the insurer has less risk because the debt falls over time, which is why it’s typically cheaper. But remember that the premiums stay the same throughout the time the policy is active.
MPPI is designed to cover your mortgage payments if you lose your job through no fault of your own, or you can’t work because of illness or injury. It typically pays out for up to one or two years. You can get MPPI that covers accident and illness, or redundancy (unemployment), or both. The comprehensive version covering both is called ASU: accident, sickness and unemployment. Cover limits, waiting periods and exclusions vary between insurers and policies.
MPPI can be useful if you’re self-employed and couldn’t keep up the mortgage payments if you became ill. You might not need it if you’re employed and there’s a generous sick pay policy and a generous payment for redundancy.
Most policies include a waiting period (sometimes called an “excess period”) before payments begin. This typically ranges from one to six months depending on the policy.
Unlike standard life insurance or mortgage protection insurance, this type of cover supports you while you’re alive (but unable to work). You can find out more in our full guide to MPPI.
We’ve set out the differences between mortgage payment protection insurance (MPPI) and mortgage protection insurance to help you decide what could be right for you.
Availability, eligibility and exclusions vary by insurer and policy. Not all types of cover are suitable for everyone.
What back-up do you have that could cover mortgage payments for a while, if you fell ill or lost your job? If you don’t have any, then MPPI is worth considering.
If you have a good emergency savings fund to cover this sort of thing, or your work provides generous sick pay, then you might not need it. Equally, if your spouse or partner could cover the payments on their own for a while, then MPPI might not be right.
But if there’s no emergency fund or partner who could cover your share, and no sick pay or redundancy that could cover it, it’s worth considering.
Meanwhile, consider mortgage protection insurance if you think the loved ones who live with you couldn’t pay the mortgage if you weren’t there.
While there’s no legal requirement to have life insurance covering your mortgage, your lender might require it before granting your mortgage.
If you’re a landlord, it’s still worth considering life insurance even if your dependants aren’t living in the property. If you have an interest-only mortgage, you might want to consider a level term policy, where the payout stays the same until the end of the term.
Whole life insurance pays out whenever you die as long as you keep paying the premiums. With this type of cover, there’s no term, or end date. Other types of life cover are usually limited by time. For this reason, it’s typically more expensive than term life insurance.
As with other life insurance, whole life gives your loved ones a lump sum if you die. It’s also known as life assurance. You can buy it with monthly premiums, annual payments or with a lump sum payment.
Some policies have exclusions that mean it won’t pay out for certain types of death, so it’s important to look at the small print.
If you just need cover for a specific period, such as the term of a mortgage, you’re likely to find the premiums are cheaper.
For a family facing major household bills and the prospect of university fees, it could be comforting to know that if one parent died, there would be a lump sum to help out with a whole range of costs as well as the mortgage.
If there’s nothing else in place that could do this job - such as significant savings, or death-in-service benefits through work - then level term insurance could be a good option.
Someone buying on their own who doesn’t have dependants living with them might consider decreasing term insurance if they want to ensure their beneficiaries don’t end up saddled with a mortgage, or being forced to sell the property.
They’d be more likely to consider decreasing term insurance, to keep costs down and simply ensure the mortgage would be paid off if they died.
If you want to chat about your options, you can do this for free with Habito’s expert protection team. We’ll search a range of insurers on our panel and, where appropriate, recommend suitable cover based on what you tell us. Our advice is free to you. If you take out a policy through us, the insurer may pay Habito a commission. This does not affect the price you pay.
Important: Life insurance policies may not pay out in all circumstances. Exclusions, terms and conditions apply. You must keep up premium payments for cover to remain in place.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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If you die while a life insurance policy is active, the payout normally forms part of your estate (everything that your heirs inherit).
But it’s quite common to put a life insurance policy “in trust”, which protects the payout from being subject to inheritance tax. This means that you’re transferring ownership of the policy to the trustees, and this ensures the payout goes to the people you choose.
Insurers can usually help to set this up when you take out a policy. But since trusts can be complex, it’s wise to get some financial or legal advice about it.
If you have a joint life insurance policy, the money goes to your surviving partner (the other policyholder). If you get a terminal illness that’s covered by the policy, you receive the payout while you’re still alive.
Payout amounts vary depending on the policy, the level of cover chosen and the insurer’s terms. The payout is based on the amount you chose to insure when you took out the policy.
Getting joint life insurance is usually more expensive than a single policy and cheaper than two single policies. Joint cover could be a good choice for a couple with shared responsibility for a mortgage - one lump sum would clear the debt if one of them were to die.
Many of us worry about what might happen to our loved ones if we weren’t around to pay the mortgage. But each person’s circumstances are different and it’s worth talking through your options to find cover that works for you.
You can chat with Habito’s expert protection team for free to discuss your insurance options. We’ll search a range of insurers on our panel and, where appropriate, recommend suitable cover based on what you tell us. Our advice is free to you. If you take out a policy through us, we may receive commission from the insurer.
Important: Life insurance policies may not pay out in all circumstances. Exclusions, terms and conditions apply. You must keep up premium payments for cover to remain in place.
See more on insurance & get protected
Important things to know
Life insurance and mortgage protection policies have exclusions and limits. Whether a policy pays out depends on meeting its terms and conditions. Always check what is and isn’t covered before you apply.
You can have both, if you want a “belt and braces” approach. You might want cover that will pay off your mortgage if you die and separately you might want to leave your loved ones with a lump sum to cover household bills, university fees and everything else. But be prepared for higher monthly premiums.
When you die, your debts are transferred to your estate. Whoever is the executor of your estate has to ensure the debts get paid before any money goes to your heirs.
The lender has the right to demand that the mortgage is repaid in full. If there’s an insurance policy covering the mortgage, or enough money in your estate to pay off the mortgage, then that would be used to pay it off. But if there isn’t, the property may end up as a “probate sale” and the proceeds used to repay the lender.
There are different types of life insurance for different purposes. If you want to leave a lump sum to your family to cover future bills and expenses - a financial cushion - then you might want to have life insurance even if you no longer have a mortgage debt.
You can cancel your mortgage protection insurance but that will mean that if you die, there won’t be cover to pay the mortgage. That means your debt would pass to your estate and your loved ones would have to deal with it.
Secure your home. Learn how mortgage protection insurance (MPPI) works, what it covers, and how it differs from life insurance. Get protected with Habito.
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