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What is Mortgage Protection Insurance?

There are several different types of mortgage protection insurance policies to provide cover against sickness, injury and death. Everyone’s circumstances are very different and your attitude to risk will also be very personal to you based on your experiences or what you feel is important to you.

You can take out mortgage protection insurance to protect your whole mortgage or to cover the monthly mortgage repayments. The most common and usually the most affordable type of mortgage protection insurance is mortgage life insurance (decreasing term insurance).

Main types of mortgage protection insurance

What is a mortgage?

A mortgage is a debt or a loan that is secured against a property which can be your main residence or a rental property. There are also commercial mortgages, but for the purposes of this article we’ll only be considering residential or non-commercial mortgages.

Usually, a lender will agree to lend up to a certain percentage of the value of your property (loan to value) which must not exceed 100%. The most common loan to value for a mortgage is around 80-85% which offers lower rates and better security for the lender.

Most lenders will require at least 5% deposit or equity for security if you are unable to make repayments or if you enter financial difficulty.

The main types of mortgage lenders in the UK are banks and building societies, which are traditionally where mortgages are provided. There are also some specialist mortgage lenders for people with more unique circumstances or requirements.

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There are two main types of mortgage which lenders offer in the UK and these are repayment (capital and interest) or interest only. The repayment mortgage is by far the most common type of mortgage As the counts for around 90% of mortgage debt in the UK. Interest only mortgages are primarily used for buy-to-let loans.

Main types of UK mortgage

Repayment mortgages are where the lender agrees to land on the basis that you will be repaying all of the capital and interest on the mortgage loan over the term. Your monthly mortgage for payment will be higher for this type of loan as you will be paying both capital and interest.

Mortgage protection insurance for repayment mortgages will usually need to cover the reducing depth of the mortgage if you die or a larger monthly repayment against sickness or injury.

Interest only mortgages are most commonly used for buy-to-let properties in the modern mortgage market. Generally, the sale of the property would be used at the end of the mortgage term to repay the capital of the loan or debt. Previously these were also endowment mortgages, however these no longer exist.

Mortgage protection for interest only mortgages will need to cover the whole amount of capital over the full term of the mortgage if you die. You may not need to protect the mortgage payments if this is a buy-to-let mortgage as mortgage repayments don’t rely on you as much.

Nobody needs mortgage protection insurance but it is definitely something that you should consider, especially if you have a family and insufficient savings. Unfortunately, none of us have a crystal ball and we can’t guarantee our future or our health, which is why this is so important for families to think about.

Most of us know at least one or even several people who have become ill or even worse, has passed away early. Even the most healthy and active people can be at risk of short and long term sickness or even death.

If you are responsible for some or all of your mortgage repayments, then you should really be thinking about protecting your family if something happens to you.

Top 5 claims with mortgage protection insurance

1) Cancer

2) Musculoskeletal problems (e.g. chronic back or joint pain)

3) Mental health issues (e.g. depression, stress, anxiety etc.)

4) Accident (e.g. injury or death)

5) Cardiovascular problems (e.g. heart attack, heart disease etc.)

Is mortgage protection insurance compulsory?

NO – there is no legal requirement for you to take out mortgage life insurance or any other type of mortgage protection insurance.

Which is the cheapest mortgage protection insurance?

The cheapest and most common mortgage protection insurance in terms of value for money is mortgage life insurance. This provides you with a lump sum payment to pay off your mortgage balance if you die.

Most mortgage advisors will recommend that you at least take out mortgage life insurance to protect your mortgage. It is not compulsory, however it is strongly advisable especially if you have children or dependents.

In the event of your death your family will receive a lump sum to repay the full mortgage balance. This means that the house will now be mortgage free and they will no longer have to worry about making mortgage repayments or potential repossession if they could no longer afford to repay the mortgage.

What’s the average cost of mortgage protection insurance?

Mortgage protection insurance costs £6.87 per month on average for £186,376 decreasing mortgage life insurance over 25 years based on our extensive research and market analysis. Our calculations give the monthly premium to protect the average repayment mortgage for a mortgage applicant age of 33 (non-smoker with no health or medical issues). The average cost of mortgage protection insurance premium for a smoker is £11.66 for the same cover amount and term.

Parents and child holding a paper cut out in the shape of a house

According to a recent survey in 2023 carried out by Finder.com the average mortgage debt in the UK was £183,376 and the average monthly mortgage repayment was £1,262 (over 60% higher than the previous year).

Also, the average cost of mortgage payment protection insurance would be £13.43 per month. This is based on an income protection policy to replace lost income due to sickness with a one month deferred period Up to 24 months cover to age 65.

The best mortgage protection insurance policy depends on your own circumstances, such as whether you have any savings or any cover through your work. You should consider your situation carefully to make sure that you and your family are protected In the event of sickness, accident and death.

Things to consider for mortgage protection insurance:

  • Have you got savings? You might have sufficient savings to be able to last for several months or even years if you are unable to work due to short term or long term sickness, or an accident.
  • Do you have cover with work? Many employers offer various types of cover as an employee benefits such as death in service or sick pay. While these are not always ideal for mortgage protection insurance, they can provide some coverage in certain circumstances.
  • Have you got any investments? Some people might have existing investments, such as bonds or ISA’s that can be used if needed. If you intend to use any investment then you should consider potential shortfalls if you’re unable to work or if you die.
  • Would your family be able to support you or your dependents? In some circumstances you might be able to get financial support from a close relative or a family member if you couldn’t work or you passed away. It is possible that you might have a strong support network from your family that could help you financially should anything happen.

Note: You should consider these points very carefully on the way up whether you feel that you need mortgage protection insurance and how much cover you might need. It is common for mortgage borrowers to need at least some protection such as mortgage life insurance to protect their family.

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As we’ve shown above, there are several different types of mortgage protection insurance which provide cover for all different types of eventualities. Below are the main different types of mortgage protection insurance and a brief description of what they do and how they work.

1) Mortgage life insurance (decreasing term life insurance)

This is by far the most common and the most affordable type of mortgage protection insurance for mortgage borrowers. Pay that a lump sum on death to repay the mortgage balance so that your partner or family are not left with a chunky mortgage debt.

You should usually be recommended to take out mortgage life insurance whenever you take a new mortgage or a remortgage.

2) Critical illness insurance (decreasing term)

This is also designed to cover you were diagnosed with a serious or critical illness such as cancer, heart attack or stroke and pay out a cash lump sum. It is less common that people take out critical illness cover for a mortgage however, it is important to consider how you would cope financially if you were to become seriously ill.

Cancer is by far the highest reason for claim on critical illness insurance and something that many people are concerned about. You might find that this type of policy is more affordable than you think so it’s worth getting a quote to see whether it is viable.

critical illness cover banner

3) Mortgage payment protection insurance

Historically, this used to be the most common way to protect your mortgage repayments against accident, sickness and unemployment. Since the financial crash in 2007, these types of mortgage protection insurance policies have become far more expensive and less common because of the increased risk of redundancy.

There are still several types of mortgage payment set protection insurance policies and providers, but they can be expensive. Currently most people tend to opt for short term income protection as a more affordable solution to protect against accidents and sickness.

4) Mortgage income protection insurance (accident and sickness)

Increasingly, mortgage borrowers in the UK are taking out income protection insurance to protect their monthly mortgage repayments. This type of cover has become far more affordable thanks to a greater choice of options and greater competition in this sector.

Income protection insurance for a mortgage can be used as a cost effective way to protect your monthly mortgage repayments if you’re unable to work due to sickness or an accident. These policies can be very flexible and the affordable for most mortgage borrowers depending on their circumstances on their health.

5) Health insurance or private medical insurance (PMI)

While this does not necessarily protect the mortgage repayments or your mortgage balance, it is used to help with faster recovery times if you become ill. This can help to reduce any financial loss if you’re sick and unable to work for a period of time.

Health insurance gives you access to some of the UK’s top specialists and private medical facilities to avoid lengthy NHS waiting times, and to aid quicker recovery times.

6) Personal accident insurance

A personal accident insurance policy can provide you with some cover and usually a lump sum payment if you’re involved in an accident that causes injuries such as:

  • Broken bones
  • Hospitalisation
  • Accidental death
  • Loss of limbs
  • Disability or paralysis

Personal accident insurance is not necessarily ideal for mortgage protection, however it can be useful for certain people, especially those who take part in dangerous sports.

What about joint mortgage protection insurance?

Most mortgages in the UK taken out on a joint basis where two people are jointly responsible for the mortgage debt. This can be either a couple or a family but ultimately the basis of the loan is the same and both people are responsible for the monthly mortgage repayment and the overall debt.

If one of you was to become ill, was involved in an accident or if you were to die, then the other person would still be responsible for the mortgage repayment and the debt. You should consider what would happen financially if you are unable to repay your mortgage for any reason.

Joint mortgage protection insurance can protect your mortgage repayments and the mortgage debt if anything happens to you or your partner. Generally, joint mortgage protection insurance is cheaper for the second applicants that will only pay out once.

How to compare mortgage protection insurance

The best and quickest way to compare mortgage protection insurance to get the cheapest possible quotes is to speak to a specialist or an expert. This way you can quickly and easily compare quotes from several of the top insurance providers to find the best options for you and your family.

There are several different options for getting quotes and comparing mortgage protection insurance, such as with your bank or online through a comprised comparison website. If you need advice then it’s always worth speaking to qualified mortgage protection insurance expert.

Speak to a mortgage protection insurance expert

Usually, mortgage protection insurance advice is free & helps you to save money on your premiums.
If you need extra information then you can contact one of our experts to find out more

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Is it worth paying for life insurance?

Yes, if you’ve got children or financial dependents then you should have life insurance to protect them if you die. Martin Lewis and the Financial Conduct Authority recommend that you take out life insurance to protect your family and your home. Generally, life insurance premiums start from as little as £5 per month and will be cheaper for younger adults.

Common myths about life insurance:

  • Life insurance won’t pay out (pays out 98% of claims)
  • People with medical conditions can’t have life insurance
  • Life insurance is expensive
  • Savings can be just as effective as life insurance
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What is the average cost of life insurance per month?

Based on recent research carried out, the average cost of life insurance is approximately £38 per month and the average level of cover is £152,000. Life insurance premiums also vary dramatically from one insurance provider to another and you can reduce your monthly premiums by shopping around.

Fundamentally, life insurance premiums vary depending on your age, health and the amount of cover that you need, starting from as little as £5 per month. You can also get life insurance to protect your family and your home against financial loss if you die.

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Average cost of life insurance - iam|INSURED

What does life insurance cover you for?

Life insurance is a monthly renewable ‘term insurance’ contract that pays out a cash lump sum or regular payments on death to your family or beneficiaries. Policies are most commonly used for family protection or mortgage protection for your loved ones if you die and your household income reduces, plus the additional issues of losing a parent or carer.

Traditional life insurance will not exclude any pre-existing medical conditions and will cover suicide after 12 or 24 months. You can also use life insurance for business protection purposes as well as tax-efficient business life insurance for directors or key people.

What are the disadvantages of life insurance?

The biggest and most common problem that consumers have with life insurance is the cost and the monthly premiums. This is the top reason for policy cancellations and why more people don’t take out life insurance to protect their family.

Another key disadvantage with life insurance is that it holds no investment value, nor can you cash it in. Life insurance works like any other traditional general insurance policy (e.g. car insurance, house insurance, pet insurance etc.), you pay a monthly premium and it will pay out in the event of a claim. Some people decide to use savings instead of taking out life insurance but you need to make sure that you have sufficient savings to cover the costs of death for your family.

Why do I need life insurance?

The fact is that nobody actually ‘needs’ life insurance, but it is strongly recommended that families and couples have cover to protect their loved ones in the event of death. Martin Lewis recommends life insurance and says “this is something that every parent, partner, or person with any other type of dependent needs to consider”.

Life insurance financially protects your loved ones if you die and pays out a cash lump sum to repay your mortgage, pay for school fees, replace lost income, and pay for regular outgoings. Mortgage life insurance is not linked to your mortgage debt so you can use it to pay off some or all of your mortgage.

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Average Cost of Critical Illness Cover

Average Cost of Critical Illness Cover

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At iaminsured.co.uk, we believe in much more than just insurance policies; we believe that everyone is unique and should be treated with the fairness that they deserve. We also believe in providing the very best financial protection, and giving you peace of mind to continue with your busy life without the stress or worry of what might happen.

We are dedicated to providing the best outcomes that we can and access to the best insurance solutions in the way that our customers want or need. We understand that everyone is totally unique in how they want things done and their own individual circumstances, which is where our totally unique approach to financial protection is driven from.

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Our Mission: To provide easy access to fair pricing, affordable protection and the very best financial security to families and individuals. We are dedicated to offering comprehensive insurance solutions that safeguard the well-being of our policyholders. Guided by integrity, transparency, and a commitment to excellence, we strive to empower consumers and families to face the future with confidence. Our mission is not just about policies; it's about protecting dreams, ensuring legacies, and being a trusted partner on life's journey.

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