Mortgage protection insurance, explained

"Mortgage protection insurance" isn't one product. Depending on who is selling it, it can mean decreasing term life insurance, which pays off what is left on a repayment mortgage if you die during the term, or mortgage payment protection insurance (MPPI), which covers your monthly repayments for a limited time if accident, sickness or sometimes unemployment stops you earning. Some people have one, some have both, and some have neither.

None of it is compulsory. MoneyHelper says it isn't a legal requirement to have life insurance when you get a mortgage. What matters is knowing which kind you have, what event it pays out on, and how long it lasts, because the gaps between the products are where people get caught out.

The two meanings of "mortgage protection"

You may also be offered critical illness cover alongside life cover, which pays a lump sum on diagnosis of a listed condition. See our guide to critical illness cover.

Decreasing term life insurance

MoneyHelper describes decreasing term cover as life insurance where the amount reduces each year, designed for repayment mortgages where the outstanding loan also falls.

A few points to understand:

• It is designed for repayment mortgages. On an interest-only mortgage the balance does not fall, so a decreasing policy would leave a growing gap. MoneyHelper describes level cover as paying the same lump sum throughout the term.
• Check how the cover reduces. If you remortgage, borrow more or extend the term, the cover and the debt can drift apart, so it is worth comparing the current sum assured with what you actually owe.
• Joint or single. MoneyHelper explains that joint life cover pays only on the first death, with the money going to the survivor unless other arrangements were made. Two single policies cost more but pay out on each death.
• Terminal illness. MoneyHelper notes many policies include terminal illness benefit, allowing an early claim if your life expectancy is under 12 months.

Who receives the money

If you take out single life cover and do not name a beneficiary or put the policy in trust, MoneyHelper says the money goes into your estate, which can take longer to reach the people you intend and could be subject to Inheritance Tax. A trust can avoid that. Scotland has its own trust law, updated by the Trusts and Succession (Scotland) Act 2024, so if you live in Scotland, ask whether the trust form you are offered is suitable for Scots law. Our guide to life insurance in trust covers this.

Mortgage payment protection insurance (MPPI)

MoneyHelper describes MPPI as a policy that promises to make your mortgage repayments if you can't work through accident, sickness and sometimes unemployment, normally as a result of redundancy. It says MPPI typically:

• starts paying about three months after your earnings stop
• pays for up to 12 months
• covers your mortgage repayment, not your wider income, though some policies pay an extra sum towards other bills

A related product, accident, sickness and unemployment (ASU) cover, pays a set amount for up to 12 or 24 months and is often linked to loans or credit cards. MoneyHelper notes that because of how payment protection was sold in the past, you may have this cover without realising, so it is worth asking your lender.

Where MPPI won't help

MoneyHelper sets out situations to watch:

• Redundancy already on the cards. If redundancies have been announced or rumoured, you won't be able to claim for them.
• Voluntary redundancy. The insurer won't usually pay out.
• Self-employed, part-time or temporary contracts. Many payment protection policies won't cover you.
• Long illnesses. Twelve months of cover won't stretch through a long period off work. Long-term income protection can pay until you return to work or retire, which is why some people use it instead of, or alongside, MPPI.

What changes the cost

For life cover, MoneyHelper lists your age, health, lifestyle, smoking, family medical history, the length of the policy, your occupation and the amount of cover. For MPPI and ASU the monthly benefit and the inclusion of unemployment cover will also affect the premium. MoneyHelper advises never buying payment protection automatically from your loan or mortgage provider without looking elsewhere, and says most mortgage providers offer life insurance when you take out a mortgage but you may find better value elsewhere.

If you can't pay your mortgage

Insurance is one source of help. MoneyHelper's first step is always to contact your lender, ideally before you miss a payment. MoneyHelper lists options to ask about, such as extending the term, switching to interest-only payments or a temporary payment holiday. It describes the Mortgage Charter, launched alongside the FCA, as the main source of government-backed help, and notes that extra help is available if you live in Scotland or Wales.

If you get a qualifying benefit, Support for Mortgage Interest (SMI) can help with interest on up to £200,000 of your mortgage, calculated at a rate GOV.UK currently gives as 3.66%. It is a loan, repaid with interest when you sell or transfer your home, and it is usually paid direct to your lender. On Universal Credit it can start after three months in a row of claiming. It can't be used for arrears or insurance premiums.

How claims work and why they get refused

For life cover, MoneyHelper notes most claims are successful but stresses giving accurate medical information when you apply, because the insurer will check your history at claim time. For MPPI, a claim depends on the waiting period, whether your situation fits the policy's definitions of accident, sickness or unemployment, and the exclusions above. Our guide to declined claims explains your rights if an insurer says no.

What to check in your policy

• Which product you have: life cover, MPPI, ASU, critical illness, or a combination.
• For life cover: decreasing or level, the sum assured today, how it reduces, and the end date compared with your mortgage term.
• Joint or single life, and who receives the money.
• Whether the policy is written in trust, and if you live in Scotland, whether the trust wording suits Scots law.
• Terminal illness benefit: included or not.
• For MPPI and ASU: the waiting period, the maximum benefit period, the monthly amount, and whether unemployment is covered.
• Eligibility conditions: self-employed, part-time and contract workers are often excluded.
• Exclusions for known redundancies, voluntary redundancy and pre-existing conditions.
• Whether the cover still matches your mortgage after any remortgage, further borrowing or term change.

When to talk to a regulated adviser

A mortgage adviser or independent financial adviser who is regulated to advise on protection can compare your cover against your current mortgage and recommend changes. That can be useful after a remortgage, a change in household income, or if you are unsure whether your existing policy still lines up with what you owe. If you live in Scotland and want to put a policy in trust, a Scottish solicitor can explain how Scots trust law applies. InsuredRight doesn't recommend products, but our free policy check can help you find the clauses above.

This guide is general information about how insurance works in the UK. It isn't advice and doesn't take your circumstances into account. Policies differ: your own policy documents are what count.