Why is mortgage protection insurance important?

Keeping up with mortgage payments is one of the most crucial monthly commitments for homeowners. But if something unexpected such as death, sickness, or disability happens, it's important to make sure that your mortgage payments can still be made.

Here are some statistics that indicate how critical it is for UK homeowners to secure their financial standing:

• Individual income protection policies in the UK 2022 rose 9% from the previous year. Total claims increased by 22%, with £231 million paid to people who were out of work (Association of British Insurers, 2023).

• The unadjusted claimant count was registered at 1.55 million in June 2023, more than the pre-pandemic quarter recorded in March 2020 (House of Commons, 2023).

• There were 1.8 million UK workers that suffered from work-related ill health in 2021 to 2022. A total of 36.8 million working days lost due to this  (Health and Safety Executive, 2022).

• Individual insurance policies paid a total of £4.64 billion in life insurance, income protection and critical illness claims in 2022. (Association of British Insurers, 2023).

Without protection, families without backup funds are forced to sell their assets, including the home itself, to cover the mortgage. Therefore, knowing that your mortgage payments are covered in unexpected situations provides mental and emotional relief, allowing you to focus on recovery or adjusting to new circumstances. This ensures that your family won't have to bear the financial strain of potentially losing their home.

But many still refuse to get covered

Homeowners that do not see the value of insurance often argue that they are immune to situations such as job loss, illness, or death, making insurance an unnecessary expense. 

Other buyers might feel financially strained, on the other hand, making them hesitant to incur another expense after investing a significant amount in deposits, solicitor fees, and moving expenses.

Others, whose past experiences related to stories of claim denials, are simply sceptical about insurance products that make them more reluctant to invest in additional policies.

But the risks they’re facing can be financially damaging in the future.

Without the safety net of insurance coverage, a family's long-term financial plans can get disrupted, including plans for children's education, retirement savings, or other critical financial goals. With the burden of monthly expenses, this could lead to accumulating debt or drawing from savings meant for other purposes.

Insurance products to help cover your mortgage needs

Homeowners who have taken on a significant mortgage liability can choose from several insurance products to ensure they don't default on their mortgage due to unforeseen challenges.

This type of insurance provides you with financial support if you experience situations like losing your job (redundancy) or being unable to work due to illness or injury (income protection).

If you suddenly find yourself without a job due to reasons such as company downsizing or economic changes, income and redundancy insurance can help cover your essential payments such as mortgage, loan instalments, and other important bills. 

Similarly, if you're temporarily unable to work because of an accident, illness, or injury, the insurance can help you keep up with your regular payments to replace your lost income until you're back on your feet and able to work again.

In these tough circumstances, your mortgage payments will still be taken care of, ensuring the safety of your home.

Critical Illness Insurance

This type of insurance provides a valuable cushion by offering a lump sum payment not subject to taxes. In the unfortunate event that you experience severe illness or become permanently disabled, this lump sum can be a lifeline, helping you manage medical expenses, daily living costs, and other financial commitments that might accumulate during a time of heightened vulnerability.

Coverage depends on the diagnosis with one of the critical health conditions specified by the insurance provider. These are outlined in the insurance policy and might include serious illnesses such as heart attack, stroke, or organ transplantation.

Mortgage Life Insurance

In the unfortunate event of a mortgage holder's demise, this type of insurance plan provides a lump sum of money, which is typically adequate to settle the remaining mortgage debt entirely. 

Depending on the specifics of the policy, it might also allocate additional funds to help with various other financial needs that could arise, offering additional relief for the family. Essentially, this ensures that the burden of the outstanding mortgage doesn't fall upon the shoulders of the grieving family, helping them navigate the aftermath without the added pressure of financial strain.

For the different types of mortgage life insurance policies, refer to our quick guide.

Mortgage protection advice

The Mortgage Hut's insurance brokers can offer an in-depth examination of your personal circumstances, highlighting potential risk exposures. This no-obligation initial consultation can help you to decide which mortgage insurance policy is most suited for you and find you the policies to cover your needs, at a competitive cost.