What is mortgage protection insurance?
Mortgage protection insurance is an umbrella term for any insurance policy that ensures your mortgage continues to be paid if you cannot make the payments yourself. It can cover scenarios including your death, diagnosis of a serious illness, long-term inability to work due to illness or injury, or (in the case of MPPI) short-term redundancy.
Unlike buildings insurance — which protects the physical property — mortgage protection insurance protects your ability to pay for it. With London mortgage balances often exceeding £400,000, the financial consequence of being unprotected is significant.
The four types of mortgage protection insurance
There are four distinct products that together provide comprehensive mortgage protection. Most people need a combination of two or three, depending on their personal circumstances.
1. Life insurance (decreasing or level term)
Pays a tax-free lump sum to your family if you die during the policy term, sufficient to clear your outstanding mortgage. Decreasing term reduces the payout in line with your mortgage balance — the cheapest form of mortgage protection. Level term pays a fixed amount — better for interest-only mortgages or if you want to leave additional funds for your family. Cost: from approximately £10/month for a healthy 30-year-old non-smoker.
2. Critical illness cover
Pays a lump sum if you are diagnosed with a specified serious illness — typically cancer, heart attack, stroke, and 40–80 other conditions. Crucially, it pays out when you are still alive but unable to work, filling the gap that life insurance leaves. Often combined with life insurance on a single policy. Cost: typically 3–5× the cost of equivalent life cover.
3. Income protection insurance
Replaces 50–70% of your gross salary as a monthly payment if you are unable to work due to any illness or injury. Unlike critical illness cover, it covers any condition — including mental health. Continues paying until you return to work, reach a chosen claim limit, or retire. The most comprehensive form of financial protection for your mortgage payments. Cost: typically 0.5–2% of annual income per year.
4. Mortgage payment protection insurance (MPPI)
Short-term insurance that covers your monthly mortgage payment (and sometimes associated costs) for up to 12–24 months if you are made redundant, become ill, or have an accident. Unlike income protection, it only covers the mortgage payment — not your full salary. Provides a valuable short-term safety net, particularly for homeowners without significant savings.
Which mortgage protection do I need?
The right combination depends on your personal circumstances, budget, and existing cover. Here is a simplified guide:
If you have a mortgage and dependants
You almost certainly need: life insurance (to clear the mortgage if you die) AND critical illness cover or income protection (to protect your ability to pay if you become seriously ill or injured).
If you are self-employed
Income protection is particularly important — you have no employer sick pay. A policy that covers any illness or injury and continues paying until you recover or retire is the most valuable protection you can have.
If you have a large London mortgage
A combination of all three — life insurance, critical illness cover, and income protection — provides the most comprehensive safety net. Monthly cost for a 30-year-old in good health: approximately £80–£150 depending on the sum assured and cover levels chosen.
Common mortgage protection mistakes to avoid
Buying through your mortgage lender without comparing the market. Lenders often sell single-insurer products that are not the most competitive. An independent broker compares 20+ insurers and typically saves clients 20–40% on premiums.
Not writing your policy in trust. Life insurance paid into your estate can face inheritance tax and probate delays of 6–12 months. Writing in trust costs nothing and takes 30 minutes — we always recommend it.
Choosing any occupation income protection. The cheapest definition only pays if you cannot do ANY work — including stacking shelves. Own occupation protection pays if you cannot do YOUR job. For professionals, the premium difference is usually modest but the protection difference is enormous.
Underinsuring. Many London homeowners only insure for the mortgage balance and forget about lost income, other debts, and childcare. We calculate the right sum assured for your specific situation.
Roger Cooper
CeMAP Qualified Mortgage Adviser | FCA Regulated
Roger has over 15 years of experience as an independent mortgage adviser. CeMAP qualified and FCA regulated, he specialises in complex mortgage cases including self-employed applicants, portfolio landlords, expat mortgages and high-value purchases across Greater London and the Home Counties.
All advice provided by Mortgage International is given by CeMAP qualified advisers regulated by the Financial Conduct Authority.