Mortgage Protection Insurance

What is mortgage protection insurance and where can you get the best deals?

Your mortgage payment is likely to be your biggest monthly outgoing but how would you pay it if you couldn’t work due to accident, sickness or unemployment? Taking out mortgage protection insurance is one way to cover this eventuality.

What is mortgage protection insurance?

Mortgage protection insurance, also known as mortgage payment protection insurance (MPPI), covers your mortgage payments if you have to stop work because you are ill, have an accident or get made redundant. This will help you to avoid losing your home if your income stops.

You can choose to take out cover for accident and sickness only, unemployment only or all three, which is the most expensive. You can also choose to cover more than your mortgage payments – usually 25% more – to pay for other bills too. The amount of cover you can get will depend on your income – typically 50-60% of it.

Due to the pandemic, some providers have stopped offering cover for unemployment or stopped offering cover at all.

How does mortgage protection insurance work?

You pay a monthly premium to an insurance provider in return for a monthly pay-out for a set period of time, which could be up to six months, one year or two years.

Most policies don’t let you claim as soon as you’ve taken it out but have an ‘exclusion period’ of one to six months at the start of the policy. This means you can’t claim if you get sick or injured, or become out of work, before this period has ended. Exclusion periods are likely to be longer for unemployment cover to stop people taking out a policy when they know they are going to be made redundant.

There will also be a ‘waiting period’ – an amount of time you need to have been off work for before you can claim. These can range from one month to six months. The longer the waiting period you choose the cheaper the policy. Some policies have ‘back-to-day-one’ cover, which means you get a pay-out that covers you from the first day you were off work.

Mortgage protection insurance pros and cons

Pros:

  • Mortgage protection insurance allows you to carry on paying your mortgage if you can’t work.
  • It’s quick to take out and relatively cheap.

Cons:

  • It will only pay out for a limited period, not until your mortgage term ends or retirement age.
  • You may not be able to claim if you have to stop work due to a pre-existing medical condition that occurred during the 12 months before you took out the policy, or only if it recurs after one or two years of taking the policy out.
  • There will be other medical exclusions that could make it difficult to claim in certain circumstances without evidence – you’re off work with mental health issues for example.

Which mortgage protection insurance comparison site can save you the most?

We gathered mortgage protection insurance quotes from the four biggest price comparison sites – Compare the Market, Confused.com, Go Compare and MoneySuperMarket – for three different scenarios to give you an idea of how much you might pay and how quotes differ.

The quotes below are for £800 of accident and sickness cover for one year for a 45-year-old non-smoker with a low-risk job and a salary of £40,000 a year. Prices are per month and are fixed for the term of the policy if it lasts longer than one year.

We collected prices for policies with one, two and three-month waiting periods. The cheapest quote for each scenario is shown in bold.

Some comparison sites offer rewards when you take out certain types of insurance with them. Compare the Market is the only one of the four we looked at to give you rewards for taking out mortgage protection insurance. Details are included below.

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Buildings insurance comparison site costs compared:

Comparison siteOne-month waiting periodTwo-month waiting periodThree-month waiting periodComparison site rewards
Compare the Market£13.36 (Holloway Friendly)£11.20 (Legal & General)£8.88 (Legal & General)2 for 1 cinema tickets on Tuesdays and Wednesdays; discounts on takeaway food and eating out
Confused.com£13.60 (British Friendly)£12.24 (British Friendly)£8.88 (British Friendly)None
GoCompare£13.60 (British Friendly)£12.24 (British Friendly)£8.88 (British Friendly)None
Money Super Market MoneySuperMarket£13.60 (British Friendly)£12.24 (British Friendly)£8.88 (British Friendly)None

Notes: Quotes gathered on 27 May 2021 for a policy starting on 1 June 2021.

Quotes from different comparison sites don’t vary as much as for other types of insurance and there are fewer providers offering them but it’s still worth using more than one comparison site to get the best price for you. The cheapest site could also change from one day to the next.

Mortgage protection insurance FAQs:

How can you get the best mortgage protection insurance quotes?

As well as using more than one comparison site, think about how long you could wait before being able to claim on the policy as the shorter the waiting period the more expensive it will be. Find out what your employer (if you have one) would pay you if you were sick or injured and for how long and whether you could cover your mortgage payments with savings for a period of time.

Which comparison site works with the most mortgage protection insurance providers?

The four comparison sites we looked at all partner with specialist brokers to offer mortgage protection insurance.

When we gathered prices for the scenarios above we were quoted prices from eight providers on Compare the Market, six on Confused.com and five on GoCompare and MoneySuperMarket, although they work with more providers than this.

How much is mortgage protection insurance?

Mortgage protection insurance is relatively cheap compared to other types of protection insurance. In our scenarios you could pay just £8.88 a month (£106.56 a year) for a policy with a three-month waiting period and £13.36 a month (£160.32 a year) for a policy with a one-month waiting period.

What does mortgage protection insurance cover?

Mortgage protection insurance is designed to cover just your mortgage if you can’t work due to accident, sickness or unemployment, although you can usually take it out for 125% of your mortgage to cover other bills too.

How much mortgage protection insurance do I need?

You should take it out for the amount of your monthly mortgage payment if your income allows it or 125% of your mortgage payment if you want to cover other bills as well.

What alternatives are there to mortgage protection insurance?

Income protection covers you for a proportion of your salary so may be a better option than mortgage protection insurance, although it’s more expensive. It can also pay out for a longer period, such as for as long as you’re out of work or until you retire, and you’ll have a medical assessment so you’ll have more certainty about what you’re covered for and what you’re not.

You can also take out critical illness cover, which gives you a lump sum if you’re diagnosed with a serious illness, and life insurance to cover your mortgage if you die before it’s paid off.

It’s a good idea to get advice from an independent broker if you’re taking out protection insurance.

Do I need to have mortgage protection insurance?

It’s not compulsory to have mortgage protection insurance but it’s important to have some cover in place so you can pay your mortgage if you can’t work. Before taking it out, check what help you would get from your employer and consider taking out income protection instead if you can afford it, especially if you’re self-employed.