A Guide to Mortgage Protection 

Taking out a mortgage comes with plenty of benefits. You get on the property ladder, own your own home, customise it to your liking and can even leave it to loved ones when you pass away.

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It’s important to consider the responsibilities alongside these benefits. What if you face unemployment? What if you pass away at a younger age than you expected? What if you fall ill? Who will be taking on your mortgage then? If these questions have you scratching your head, you may be interested in taking out protection with your mortgage.

What is mortgage protection? 

Mortgage protection is a way to ensure your mortgage payments will be taken care of, should you pass away become too ill to repay them yourself. When you take out a mortgage, it is only mandatory to take out buildings insurance so that your home is protected in case of burglary or damage. Protections are not mandatory but are highly recommended by mortgage experts.

What are the positives of having mortgage protection? 

Mortgage protection offers peace of mind 

If you pass away before paying off your mortgage, the bank can foreclose your home, even if your family or partner is living there. If you shared the mortgage with someone else, they now take on the burden of paying it, otherwise their home could be taken from them. Taking out mortgage protection would make sure your family or loved ones aren’t forced into this situation. Peace of mind is the greatest benefit to taking out mortgage protection.

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Mortgage protection is useful for the self-employed 

Mortgage protection might be a particularly good idea if you are self-employed. Since you are not eligible for sick or redundancy pay, and may no longer be able to carry out your work as normal due to your condition, keeping up with mortgage payments may prove particularly difficult should you fall ill or have an accident.

Mortgage protection can cover bills alongside mortgage payments 

Mortgage protection doesn’t have to stop at mortgage payments. The monthly amount your policy covers can be 125% of your mortgage costs, so that other bills can be covered.

Mortgage protection has multiple coverage options 

Depending on the type of cover you choose, you can be covered for unemployment as well. This means you’ll have the option of being covered for accidents and sickness, unemployment or all three.

Mortgage protection has high acceptance rates 

Older people seeking life insurance, or those with pre-existing medical conditions, may struggle to find a policy that works for them. It is very unlikely that someone’s applications would be turned down, so people in these circumstances can at least get help covering what is likely to be their biggest cost and therefore biggest concern, their mortgage payments.

What are the negatives of having mortgage protection? 

Mortgage protections offers short-term protection 

Mortgage protection is not a long-term option. Some policies may have payments that last for up to two years but most offer cover for a maximum of twelve months. For individuals looking for longer term coverage, usually due to health reasons, options such as income protection, a more general life insurance policy, or critical illness insurance could be the better option.

Critical illness insurance is particularly important for people who have not had a long-standing health condition but have suddenly been afflicted by conditions such as cancer, a heart attack, stroke, blindness, deafness, paralysis, loss of a hand or foot, or third-degree burns.

Mortgage protection has an impact on existing mortgage benefits 

If you do receive a payment from your mortgage protection policy, this may affect your eligibility to receive some income-related benefits.

Mortgage protection has payment limitations 

There are limits to the amount of money paid out from your mortgage policy. In the case of unemployment, you will receive what was defined in your contract as a set amount or percentage, and this is unlikely to equal the amount of your previous monthly wages.

It may not be worth it if you have low mortgage payments 

Of course, having low mortgage payments isn’t usually a bad thing! However in this case, mortgage protection may just not be worth it. You may be more likely to pay off your mortgage quickly or your payments are low enough that any savings should be able to cover them should you find yourself in the unfortunate position of not gaining income due to accident, illness or unemployment.

Mortgage protection payments stay the same as your mortgage decreases 

Your mortgage protection covers only the payoff amount on your mortgage, which naturally goes down each month as you continue to pay it. However, your monthly premiums remain the same despite the fact that your final pay out will be based on a lower mortgage amount than when you initially took out the mortgage protection.

What’s the difference between life assurance and mortgage protection? 

Life assurance in a type of insurance that covers you for the entirety of your life, known as ‘whole of life’ cover. A life assurance policy isn’t specifically associated with mortgages, but can cover any life events, which of course could include your mortgage. When someone dies, their life assurance policy replaces a financial benefit that was lost as a result of that death.

This can be a predetermined amount of money gifted all at once or in monthly payments, or money to be used for a specific purpose like tuition or a grandchild’s future wedding. A mortgage protection policy only applies to a mortgage that can no longer be paid, in the case of serious sickness or death. Some life assurance policies give you an option to add on mortgage protection.

How do I find the best mortgage protection option? 

You’ll find a range of insurance policies and packages out there, depending on the provider. It’s wise to speak to trained advisors who can give you the best advice on which option is right for you. A mortgage broker will always be able to provide expert advice on your mortgage options.

If the idea of committing to monthly premiums for mortgage protection worries you, you might feel more comfortable with creating an emergency savings fund to be used alongside your pension. On the other hand, your health may cause you to worry about leaving your loved ones with a potentially large financial burden.

Either way, to have the best possible chance of making the right choice, take into consideration the pros and cons of taking out mortgage protection, speak to a professional, and most importantly speak to your loved ones.

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