Is mortgage insurance mandatory?

Mortgage payment protection insurance vs mortgage life insurance

First things first, let’s clear up some confusion. 

There are two main types of mortgage insurance: mortgage protection insurance and mortgage life insurance. Confusingly, the terms ‘mortgage protection’ and ‘mortgage insurance’ are sometimes used interchangeably. 

This can make it harder to find the right cover for you, especially if you haven’t received advice from an insurance specialist like us.

Before we continue, let’s first take a look at the key difference between mortgage protection insurance and mortgage life insurance:

🏠 Mortgage protection insurance

AKA: mortgage payment protection insurance (MPPI)

Mortgage protection insurance helps you keep on top of your mortgage payments if you’re unable to work due a serious illness, injury or redundancy. 

🏠 Mortgage life insurance

AKA: decreasing life insurance

Mortgage life insurance is a type of life insurance where the cover decreases over time to reflect the outstanding mortgage balance.

With so many different insurance providers and policies to choose from, each with their own payouts and terms, knowing the difference between mortgage protection and mortgage insurance can make it so much harder to find the right cover. If you need more guidance, speak to one of our insurance specialists.  

Is it compulsory to have life insurance with a mortgage?

No, it’s not compulsory to have life insurance with a mortgage. Many people take out a mortgage without getting any insurance at all. However, if you have a partner or children who depend on you financially, taking out life insurance with your mortgage could make it easier for them to stay in the family home if you were to pass away.

Do I need mortgage insurance?

Mortgage insurance is completely optional, but with premiums starting from as little as £5 a month, it can be an affordable way to protect your home in the event of illness, redundancy or death. Whether you need mortgage insurance will depend on your personal circumstances. If you’re buying a house with someone else or your partner and children live in your home, you might benefit from both mortgage protection insurance and mortgage life insurance. 

If you’re off work due to an illness or injury, or you’ve been made redundant, your insurance provider will give you a monthly payout which you can use for your mortgage payments. If you passed away, your loved ones would receive a large one-off payout which they could use to pay off the mortgage. 

If you’re purchasing a property by yourself and you don’t have any dependents, mortgage life insurance might not be necessary as the property could be sold to pay off your outstanding balance. However, you may benefit from mortgage protection insurance, since that’ll cover your repayments if you’re unable to work due to a serious illness, injury or redundancy. 

What happens to mortgage insurance when the mortgage is paid?

If you take out a mortgage insurance policy that decreases over time, the policy will end when your mortgage is paid off. This means that your monthly premiums will end and your loved ones won’t get a payout if you pass away. 

You don’t have to link your life insurance to your mortgage. The payout amount can stay the same if you wish. If you’d like your family to receive a payout even after your mortgage has been paid off, you might be better suited to level term life insurance or whole of life insurance. 

Decreasing life insurance can be more affordable than the alternatives above, but if your family would struggle to cover their other living expenses if you were no longer here, it may be worth paying that little bit more. 

Learn more: Can I have more than one life insurance policy?

What are the alternatives to mortgage insurance?

There are a few alternatives to mortgage insurance, including:

• Life insurance
• Income protection
• Critical illness cover

❤️ Life insurance

Life insurance can protect your loved ones from financial instability if you pass away. If you don’t want the payout amount to decrease over time, consider level term or whole of life insurance. If you want to cover both yourself and your partner, you could take out two individual policies or a joint life insurance policy. 

💸 Income protection

Income protection is more comprehensive than mortgage protection as it’s designed to cover a number of living expenses if you’re out of work. It covers a portion of your salary, rather than just your mortgage payments. It can also last longer than mortgage payment protection insurance, in some cases covering you until you go back to work or retire. Of course, this can make your premiums more expensive, but it may be worthwhile if you’re in a high-risk job.

Learn more: Best income protection policies in the UK

🤕 Critical illness cover

Critical illness cover will pay you a one-off lump sum payment if you’re diagnosed with a serious illness — even if you’re expected to make a full recovery. You could use the money to cover your ordinary living expenses, medicine and treatments, or buy specialist equipment for your home. Some critical illness policies will payout even if you’re still able to work. Most insurance providers cover stroke, heart attack and certain cancers, but other illnesses often vary between insurers.

If you’re diagnosed with an illness that isn’t included in your insurer’s list, you unfortunately won’t be covered. This is where a combination of income protection and critical illness cover can be invaluable. Income protection can help with your living costs regardless of the specific injury or illness, as long as it impacts your ability to work and earn money. 

Learn more: Best critical illness cover policies in the UK

*Prices where indicated in adverts are based on the below criteria, as of 06/02/2024. Prices quoted may vary depending on your own individual circumstances including age, medical history, the sum assured, length of policy - and other variables.

Mortgage Insurance from £5 per month:
25 year old female client- non-smoker. Single life cover, decreasing benefit over 23 year term for £200,000 mortgage.