Would you struggle to pay the mortgage if you lost your job or fell ill? This safety net could help keep the payments going.

Mortgage protection insurance covers your monthly mortgage payments for you if you lose your job or have to stop working because you’re injured or ill. It’s a type of income protection that lasts for a specific period.  

If you think that not being able to work might mean you couldn’t pay the mortgage, then it’s worth considering this type of cover. Our guide can help you decide if mortgage protection insurance is right for you, and explains how Habito’s experts can help you figure out your options, for free!

What is mortgage protection insurance?

Mortgage protection insurance is a type of short-term income protection. It’s also known as mortgage payment protection insurance (MPPI). That’s because its main role in life is to protect your mortgage payments and keep you in your home if you stop working unexpectedly.

MPPI specifically covers mortgage payments and kicks in if you lose your job through no fault of your own, or you become unable to work because of an accident or serious illness. 

Mortgage protection insurance is different from insurance that protects your home (buildings and contents insurance) and different from general income protection, which isn’t specific to mortgage payments. It’s also different from life insurance. 

How mortgage protection differs from life insurance

Mortgage protection insurance covers monthly mortgage payments for up to two years if you’re made redundant or become injured or too ill to work. You usually have to wait up to six months for the payments to start. 

Mortgage protection insurance is designed to keep you in your home during a temporary loss of income. But life insurance has a different role. Life insurance for a mortgage pays out a lump sum to clear your mortgage debt if you die or become terminally ill. There’s no wait to claim and it’s designed to keep your dependants in their home if you die. There’s more on life insurance and how it differs from payment protection in our guide to mortgage life insurance.

Do you need both mortgage payment protection and mortgage life insurance?

You might need both if:

• Not being able to work would mean you’d struggle to pay the mortgage
• If you died, loved ones living in your home wouldn’t be able to pay the mortgage 
• You have no other insurance or work benefits that would give you enough cover for both temporary loss of income and death (for example, you might be self-employed and don’t have sickness or redundancy pay or death-in-service benefits)

But if your employer offers generous redundancy, sick pay and death-in-service benefits, or you’re already covered to the level you need by existing insurance or substantial savings, then you might find you don’t need these policies.

You might also be eligible for some state benefits that help to pay the mortgage, but benefit rules can change.

How mortgage payment protection works

As with other insurance, you pay a monthly premium for mortgage payment protection. The cost is determined by the amount of cover and how likely you are to need it (based on your health and age, for example). There’s more on this below. 

There are some things it won’t cover, such as any medical conditions you already have.

If you make a successful claim on MPPI, there’s usually a delay of up to six months, called a “deferred period” or an “excess period”, before it starts to pay out. Some insurers offer cover that, at the end of this period, backdates payments to when you made the claim. 

The policy then makes regular monthly payments for typically a year, but it can be up to two years, rather than paying for the long term or paying out a lump sum.

Payments are usually capped by insurers at either:

• A set amount each month, often around £1,500-£2,000 depending on the insurer 
• A proportion of your earnings - often up to 65% of your gross monthly income

Some insurers will let you add an extra 25% of cover on top of your mortgage payment to help with household bills. This is likely to bump up your premium.

Accident and sickness cover

With this, you’re covered if you have an accident or get so ill that you can’t work. But it won’t cover you if you’re made redundant. 

You may have some cover already if you have life insurance that includes critical illness: this can help you to pay the mortgage if you get an illness that’s listed in the policy. But that doesn’t cover redundancy.

Redundancy cover

This covers you if you’re made redundant but not if you’re sacked. It won’t cover you if you can’t work due to illness or injury. If you work in a sector that’s prone to redundancies in an economic downturn, it’s particularly worth considering this type of cover.

Combined accident, sickness and unemployment cover

This comprehensive cover will protect your income from both redundancy and being too ill or injured to work.

Is mortgage protection insurance a legal requirement?

It’s not a legal requirement to have mortgage protection insurance - it’s optional. Lenders don’t usually insist that you have MPPI but they may recommend it as a safety net for your payments, especially if you’re borrowing a high proportion of the value of your home (high LTV). That’s because you likely have less financial wiggle room.

Lenders do make buildings insurance a mandatory condition for taking out a mortgage, to protect their investment, but they don’t usually require you to take out payment protection insurance.

How much does mortgage protection insurance cost?

MPPI often costs around £20-£30 per month for typical cover, although premiums can start from around £5 depending on the level of cover, your health and personal circumstances.

Factors that affect your premium include:

• Your age: older people are more likely to become ill, so premiums are higher
• Smoking: smokers and vapers are considered more likely to get ill
• The type of work you do: manual workers are more likely to get injured than someone working at a desk
• The amount of your mortgage payments: the higher the amount, the higher the premium
• The amount of cover: if you want redundancy plus accident and sickness, or if you want the extra 25% for household bills, it’ll cost more
• The length of the deferred period: if you can defer for longer, that could cut your premium. But you’ll need a way to cover the payments during that time

Here are some example costs for a 30-year-old non-smoker insuring a payment of £1,000 a month for 12 months:

Source: Protection Review UK protection market analysis (latest available data).

Availability, eligibility and exclusions vary by insurer and policy. Not all types of cover are suitable for everyone.

Exclusions: What isn't covered?

Although policies vary, you’re likely to encounter these exclusions:

• Medical conditions you already have, and chronic conditions
• Pregnancy and birth (related complications may be covered, though)
• Some stress-related or back-related issues, except those meeting specific criteria
• Self-inflicted injuries and drug or alcohol abuse
• Surgery and medical treatment you’ve chosen to have
• Voluntary redundancy or resigning from your job
• Prior knowledge of potential redundancy
• Being made redundant during the initial exclusion period of the policy
• Refusing your employer’s offer of an alternative role
• Getting sacked from your job
• If you’re self-employed, you usually can’t claim for unemployment

Comparing your protection options

It can be tricky to work out if you need cover, and if so, what type might suit you best.

• Instead of mortgage payment protection, you might want mortgage life insurance, which pays out a lump sum if you die within the term.
• Or you might want critical illness cover, which pays you a lump sum if you’re diagnosed with a serious illness that’s listed in the policy.
• Alternatively, there’s general income protection, which pays a chunk of your income if you can’t work because of illness or injury, and can be either short term or long term. 
• Mortgage payment protection insurance can help cover payments in the short term, but it usually only pays out for a limited period and may not cover every situation, so it’s important to compare it with other protection options.

When you’re considering cover, it’s key to look at the amount you and your family might need, and of course value for money when you’re comparing providers. 

Habito can help

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.

Chat to a protection expert

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.

Frequently asked questions

Can I cancel my mortgage protection insurance at any time?

As with other insurance, you can usually cancel mortgage payment protection at any time. If you took out a policy and then changed your mind about it, check if you’re still within the cooling-off period so you can get a refund on any premiums you’ve paid. Otherwise, you won’t get a refund of those.

Is mortgage insurance considered "junk insurance"?

Mortgage protection insurance (MPPI) isn’t the same as payment protection insurance (PPI) which covers general debt and got a bad reputation after certain high-cost, poor value policies were mis-sold between 1990 and 2010.

Does my employer’s sick pay affect my need for MPPI?

Yes. If your employer has a generous sick pay policy which covers you for a long period off work, such as a year, you might not need MPPI, or might need less.

What happens to my mortgage if I die without protection?

If you die with an outstanding mortgage debt and no cover in place, that debt becomes part of your estate for your dependants to deal with. If your mortgage is joint with someone else such as a spouse, they usually become liable for the full debt.

‍