Around 12 properties are still being repossessed every day in the UK, according to figures from March 2019. That number might sound small, but it represents families who lost their home because they couldn’t keep up with mortgage payments. I’ve been writing about personal finance and property for years, and this is the question that comes up more than almost any other: “What happens if I can’t pay my mortgage?” The answer depends almost entirely on whether you have the right insurance in place before things go wrong.
Missing mortgage payments doesn’t just mean a late fee. It can trigger higher interest rates, additional fines, and eventually repossession. That’s why choosing the right mortgage insurance matters so much. But the market is full of overlapping products with confusing names, and picking the wrong one can leave you paying for cover that doesn’t actually protect you when you need it. Here’s what you actually need to know.
What mortgage insurance actually covers — and what it doesn’t
Most people assume mortgage insurance is a single product. It’s not. There are several distinct types, and each one covers a different risk. The most common confusion is between mortgage life insurance and mortgage payment protection insurance. They do completely different things.
Mortgage life insurance pays out a tax-free lump sum when you die, which your family can use to clear the mortgage in one go. Mortgage payment protection insurance, on the other hand, pays a monthly amount to cover your repayments if you’re too ill to work or lose your job. They address different problems, and many people need both. What I tend to notice is that buyers focus on life insurance because it feels more urgent, but the more immediate risk for most working-age people is a period of illness or unemployment that stops their income.
Why the right cover matters more than you think
Nearly 357,000 people in the UK are diagnosed with cancer every year. That’s not a rare event — it’s a statistical likelihood that affects thousands of mortgage holders annually. If you’re diagnosed and can’t work, your income stops but your mortgage doesn’t. The average outstanding mortgage debt for UK households is around £129,126, with average yearly interest of £3,202. Without cover, you’d need to find that money from savings or risk falling behind.
Consider a 40-year-old office worker who wants £1,000 a month of mortgage payment protection. For accident and sickness cover, the premium is about £12.13 per month. For accident, sickness and unemployment cover, it’s around £39.53 per month. That’s less than a takeaway coffee a day for the basic cover. But if you’re made redundant — and at the peak of the 2009 recession, 235,000 UK workers were made redundant in a single year — that monthly benefit could be the difference between keeping your home and losing it.
One thing I’d say from watching this play out over the years: don’t assume your employer’s sick pay or savings will be enough. Statutory sick pay is minimal, and redundancy can come with no warning at all. The peace of mind from a well-chosen policy is worth far more than the premium.
Where people go wrong when choosing mortgage insurance
I’ve seen the same mistakes crop up again and again. They’re easy to make, but they’re also easy to avoid once you know what to look for.
Confusing mortgage payment protection with income protection
This is the biggest one. Mortgage payment protection insurance (MPPI) covers your mortgage payments only. Income protection can cover up to 65% of your total earnings, which means it covers your mortgage plus everything else — food, bills, transport. More importantly, income protection typically uses an “own occupation” definition of incapacity. That means you can claim if you can’t do your specific job. Most MPPI policies use a “suited occupation” definition, which means they can reject your claim if they think you could do any job that matches your skills, even if it pays far less. If you want robust cover, income protection is often the better option, even though it costs more.
Buying the cheapest policy without checking exclusions
Pre-existing medical conditions are almost always excluded from mortgage insurance. If you knew about a condition before taking out the policy, you won’t be covered for it. Voluntary redundancy, resignation, and job loss due to misconduct are also excluded. Some policies won’t cover self-employment winding down or business closure unless you have specific cover. The cheapest policy often has the longest list of exclusions. Always read the policy document, not just the headline price.
Assuming buildings insurance is optional
Most lenders require buildings insurance as a condition of your mortgage offer. It covers the cost of rebuilding your home if it’s damaged by fire, flood, or other insured events. Without it, you’d need to pay for rebuilding yourself while still making mortgage payments. This isn’t a nice-to-have — it’s a requirement, and skipping it can void your mortgage terms.
Not considering how your cover type affects the payout
Decreasing term life insurance costs less than level term because the payout reduces over time, matching your declining mortgage balance. Level term pays the same amount throughout, which means there could be money left over after the mortgage is cleared. Whole of life insurance pays out whenever you die, even after the mortgage is paid off, but it’s much more expensive. The right choice depends on whether you want to leave extra money to your family or just cover the debt.
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| Age | Mortgage Life Insurance (£250k cover, decreasing, 25 years) | MPPI Accident & Sickness (£1,000/month) | MPPI Accident, Sickness & Unemployment (£1,000/month) |
|---|---|---|---|
| 30 | £6.88/month | £7.38/month | £29.68/month |
| 40 | £12.35/month | £12.13/month | £39.53/month |
| 50 | £29.32/month | £29.87/month | £60.37/month |
If you’re unsure about the legal side of your mortgage terms, speaking to a property lawyer can help clarify what your lender actually requires and what you’re signing up for.
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How to choose the right mortgage insurance for your situation
There’s no single policy that works for everyone. Your age, health, job type, and mortgage size all affect what you need and what you’ll pay. Here’s how to work through it step by step.
Start with what your lender requires
Buildings insurance is almost always compulsory. Check your mortgage offer to confirm the minimum level of cover required. Some lenders also require life insurance, especially if you’re taking out a joint mortgage. Don’t buy more than you need to satisfy the lender, but don’t buy less than you need to protect yourself. If you’re unsure what your lender’s terms mean, a real estate lawyer can review the paperwork and explain your obligations.
Decide between mortgage life insurance and level term cover
If your only goal is to ensure the mortgage is paid off if you die, decreasing term life insurance is the cheapest option. For a 30-year-old non-smoker looking for £250,000 of cover decreasing over 25 years, the premium is around £6.88 per month. If you want to leave extra money to your family after the mortgage is cleared, level term cover costs more but pays a fixed amount. Whole of life insurance is expensive and usually unnecessary for mortgage protection alone.
Choose between MPPI and income protection for illness and unemployment
If you’re on a tight budget, MPPI is cheaper and covers your mortgage specifically. For a 40-year-old, accident and sickness cover costs about £12.13 per month. But if you can afford it, income protection is more comprehensive because it covers up to 65% of your earnings and uses an “own occupation” definition of incapacity. That means you’re more likely to get paid if you can’t do your job. The trade-off is cost — income protection premiums are higher, but the cover is broader.
Check the deferred period carefully
The deferred period is the time between when you stop working and when the insurance starts paying out. Common options are 4 weeks, 8 weeks, or 13 weeks. A shorter deferred period means higher premiums but faster payments. A longer deferred period is cheaper but requires you to have savings to cover the gap. If you have three months of emergency savings, you can choose a longer deferred period and save on premiums. If you don’t, a shorter period is safer.
Consider critical illness cover for serious conditions
Critical illness cover pays a lump sum if you’re diagnosed with a condition like cancer or stroke. It’s separate from life insurance and MPPI. The payout can be used to clear the mortgage or cover living expenses while you recover. Each policy has its own list of covered conditions and exclusions, so read the fine print. If you have a family history of certain illnesses, this cover becomes more valuable.
Frequently asked questions about mortgage insurance
Is mortgage insurance compulsory in the UK? ▾
Can I claim mortgage insurance if I’m self-employed? ▾
What’s the difference between decreasing and level term life insurance? ▾
Does mortgage insurance cover pre-existing medical conditions? ▾
How long does mortgage payment protection pay out for? ▾
Can I get mortgage insurance if I have a high-risk job? ▾
If you’re still unsure which policy fits your situation, speaking to a financial advisor can help you compare options based on your specific income, health, and mortgage terms.
Your next move
The most important step is to check what cover you already have. Many people pay for mortgage insurance through their lender without realising what it actually covers. Review your policy documents, check the exclusions, and make sure the deferred period matches your savings buffer. If you don’t have any cover yet, start with buildings insurance (it’s required anyway), then add life insurance if you have dependents, and finally consider payment protection or income protection based on your job security and savings. If this was useful, you might also want to read essential steps to minimise financial risks when buying a home.
Sources and Further Reading
Understanding mortgage payment grace periods — Explains what happens if you miss a payment and how grace periods work before repossession proceedings begin.
Housing market fluctuations and tips for buying a house — Covers how market conditions affect mortgage affordability and why insurance matters more in a downturn.
Mortgage Insurance Advice. Drewberry Insurance, 2024.
What insurance do you need with your mortgage?. Money.co.uk, 2024.
A first-time buyer’s guide to mortgage protection and insurance. Count Ready, 2024.
