A guide to your mortgage protection needs:

– What is life insurance?

– Why do I need life insurance?

– How much life insurance do I need?

– What is critical illness cover?

– Income protection; what does this cover?

– Family income benefit.

– Let the stats do the talking

– What do I do now?

mortgage protection

What is life insurance?

Life insurance (also known as term assurance and life policy) pays your family a tax-free lump sum should you pass away within the policy term.

There are two types of life insurance:

Level cover

Your premium and amount of life cover stay the same for the term of the policy.

Decreasing Cover

The amount you pay stays the same but the amount paid if you pass away reduces during the term. This is a popular option when protecting a mortgage or long-term loan.

Why do I need mortgage protection?

No one thinks about dying when they buy a house, why dampen the excitement. A house is the most expensive thing you will buy and so why not protect it. You wont be the one to benefit from a life insurance policy but your loved ones will. Life insurance is the peace of mind that your family could cope financially if you are not around.

Mortgage protection can be used in a few ways:

  • Pay off your mortgage or maintain household bills
  • Retain your loved ones’ living standards
  • Contribute to health and living costs if you become critically ill
  • Pay your children’s tuition or university fees
  • Pay off debts

How much mortgage protection do I need?

Deciding how much mortgage protection you need depends on your circumstances and what level of cover you want in place. The amount of cover you have and the insurer you choose will affect the premium. Age, height/weight and pre-existing conditions are factors that may affect cost but shouldn’t be reasons you don’t take cover.

We always advise that you cover your mortgage balance, but also consider how your loved ones will clear any debts or other lifestyle costs if you are gone.

What is critical illness?

Critical Illness Cover is designed to pay out a lump sum or monthly income if you’re diagnosed with a critical illness or become permanently disabled within your policy term.

Policies vary and can cover 50+ critical illnesses, including the most common reasons for claims such as cancer, heart attacks, strokes and multiple sclerosis. These account for 89% of claims on critical illness policies and are referred to as ’the big 4’. Critical illness contracts will also provide partial payments in the event of other less serious illnesses that may still require time off work to rehabilitate.

Things we think you should consider are;

  • Waiver of premiums – If you’re too ill or too injured to work, Waiver of Premium means you won’t have to pay your premiums. Insurers waive your premiums if you’re incapacitated for longer than 26 weeks. Waiver of Premium will end when you reach the end of your term or policy max age.
  • Additional support – something that can be overlooked, but some insurers offer that personal touch too. Whether it is a reassuring call from a nurse, a second medical opinion, bereavement counselling or hospitalisation Benefit. Having someone to speak to can lighten the emotional and financial burden.
  • Total Permanent Disability – If you have an illness or injury that results in a permanent disability, Total Permanent Disability will pay out the sum assured. You’ll usually have to be incapacitated for at least 26 weeks before the insurer can establish whether the incapacity is permanent with most insurers.
  • Children cover – something we hate to ever live through, unfortunately for insurers this is the 5th most claimed element of any critical illness contract. Having children’s cover allows your children to be covered from birth to the age of 22 with some insurers. If your child was to become critically ill, they would be covered just like the policyholder for a proportion of the sum assured.

What if I can’t work?

Income protection will pay you a regular income, whether you’re employed or self-employed usually at a rate of 50% – 75% should you fall ill, suffer an injury or are unable to work.

Having a Tax-free salary for a period of time until you are back at work allows you to remove financial stress, something that has been proven to effect recovery of illnesses.

Some policies can also help if you are self-employed by including certain fixed overheads you may have, such as home or business costs.

We have found Fracture cover is also a popular choice for self-employed people who play sport. A pay-out for broken bones and damaged ligaments could keep you off work.

What is family income benefit?

Family income benefit will pay your family and loved ones a guaranteed tax-free amount each month should you pass away. The monthly payments continue for until the end of the term on the policy.

You just have to choose the amount you think your family would need to cover costs such as mortgage payments, utilities, council tax, shopping.

Common misconceptions with mortgage protection

“Life insurance never pays out”. – not the case, the Association of British insurers (ABI) has found that 98% of protection claims were paid out including 97% of term assurance and 92% of critical illness claims in December 2019.

“I don’t want to get taxed” – All insurance policies are tax free pay-outs on successful claims.

“My family will cover my mortgage” – Not all families are wealthy. Although it is generous for parents to help, the reality is that if you are critically ill it may be a few years before you are back on your feet financially. Realistically a mortgage payment could be £700+ per month, then living expenses on top.

“I have cover through work”. – Benefits like Death in service, critical illness cover and Health insurance are common with most employers but differ massively. Death in service is intended to cover the living costs of families should you pass, not necessarily a mortgage. Having additional cover for your mortgage means that if you do have a job role change in the future you are covered.

sweet smart pug puppy dog sitting in front of blackboard

Terminal illness cover vs critical illness cover;

Terminal illness cover is an extension of your life insurance and usually pays-out if you are diagnosed to pass away within 12 months.

Critical Illness cover will cover a set number of illnesses, if you are diagnosed with one you will then receive a pay-out.

Is income protection the same as PPI?

income protection isn’t the same as the widely mis-sold payment protection insurance (PPI), PPI covers a specific debt and pay-outs go to your lender.

Income protection (IP) pays out a tax-free income if you are unable to work.

Let’s talk statistics!

–        1 in 2 UK people will be diagnosed with cancer in their lifetime

Cancer research UK*

–        Heart and circulatory diseases cause more than a quarter (27 per cent) of all deaths in the UK; that’s nearly 170,000 deaths each year – an average of 460 people each day or one death every three minutes.

British Heart Foundation – July 2020*

–        £14.5m every day amount insurers pay out for protection policies, including income protection, critical illness and life insurance.

Association of British Insurers – December 2019*

–        Only 58% of households with a mortgage have life insurance But 90% of households in Great Britain have internet access

Finder – life insurance statistics* UK Office for National Statistics*

–        You can get £99.35 per week Statutory Sick Pay (SSP) if you’re too ill to work. It’s paid by your employer for up to 28 weeks


–        On average, UK households spend £586 per week

2018/19 Living Costs and Food Survey from the Office of National Statistics (ONS)*

–        Every year over 1 Million people are off work for a month or longer due to illness

Financial Times Advisor*

What Do I do now?

Speak to one of our Protection specialists and let us help protect your home and family. We will only need 5-10 minutes of your time, then research our panel of insurers for you.