Buying a home is often the biggest financial commitment we make. That monthly mortgage payment is a significant outgoing, and it’s crucial to consider what would happen if you were no longer able to pay it due to unforeseen circumstances like illness, injury, or even death. This is where mortgage protection insurance comes in.
But it’s not just one type of policy. There are several ways to protect your mortgage payments and provide peace of mind for you and your family. Let’s break down the main options available.
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Life insurance for your mortgage
This is designed specifically to pay off your outstanding mortgage balance if you pass away during the policy term. There are two main types:
- Decreasing Term Life Insurance: This is the most common type directly linked to a repayment mortgage. The amount of cover decreases over the policy term, broadly in line with your decreasing mortgage balance. Because the potential payout reduces over time, premiums are generally lower.
- Level Term: With this policy, the payout amount remains the same throughout the policy term. If you pass away at any point during the term, your beneficiaries receive a fixed lump sum. This might be suitable if you want to leave an additional lump sum for your family on top of clearing the mortgage.
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Critical Illness Cover
Critical Illness Cover pays out a tax-free lump sum if you are diagnosed with a specific, serious illness listed in the policy during the term. Common conditions covered often include:
- Certain types and stages of cancer
- Heart attack
- Stroke
- Multiple Sclerosis
- Parkinson’s
This lump sum can be used however you need it – crucially, it could be used to pay off your mortgage entirely, cover monthly payments while you recover, pay for private medical treatment, or make necessary adaptations to your home.
This type of cover can often be added to a life insurance policy or bought as a standalone plan. The exact conditions covered vary between insurers, so always check the policy details carefully.
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Income protection insurance
This type of insurance is designed to replace a portion of your regular income if you’re unable to work due to illness or injury.
Unlike Critical Illness Cover which pays a lump sum upon diagnosis of specific conditions, Income Protection provides a regular monthly payment until you can return to work, reach retirement age, or the policy term ends (whichever comes first).
How does this help with your mortgage? The regular payments can be used to cover your monthly mortgage instalments, as well as other essential bills, ensuring you don’t fall behind financially while you focus on recovery.
Key income protection terminology to know:
- Deferment Period: This is the waiting period between when you stop working and when the policy starts paying out (e.g. 4, 13, 26, or 52 weeks). A longer deferment period usually means a lower monthly premium.
- Benefit Amount: this means the monthly payout – which is typically 70-80% of your gross monthly income. Due to the payment being tax-free.
Pre-existing medical conditions
A common concern is whether you can get cover if you have a pre-existing medical condition like diabetes or a history of cancer. The good news is that it’s often still possible, but it requires full transparency.
- Full Disclosure is Essential: You must declare any pre-existing conditions during the application process. Insurers will likely ask for details and may request access to your medical records (with your permission) or ask you to undergo a medical examination.
- Insurer Assessment: Each insurer has its own underwriting guidelines. They assess the risk based on your specific medical details. What one insurer might decline, another might accept.
- Specialist Advice: If you have a pre-existing condition, using an independent insurance broker who specialises in finding cover for people with medical conditions can be invaluable.
Affordable life cover after breast cancer with The Insurance Surgery
Sarah recovered from Stage 2 Breast Cancer, and treatment was completed in 2021.
Sarah’s previous attempts to get life insurance post-treatment resulted in declines or unaffordable quotes of around £150 per month.
Sarah contacted The Insurance Surgery for specialist help. Our advisor, Jess, understood the difficulties faced by cancer survivors in the insurance market.
Recognising the need for detailed evidence, Jess spent 10 days liaising with Sarah to obtain specialist medical letters.
Instead of facing high costs, The Insurance Surgery secured £220,000 of life insurance cover for just £40 per month. This was a huge saving compared to previous quotes and, more importantly, gave Sarah invaluable peace of mind knowing her daughter was protected.
While standard life insurance (decreasing or level term) covers the debt on death, Critical Illness Cover provides a lump sum on diagnosis of serious illness, and Income Protection replaces lost earnings due to illness or injury.
Even with pre-existing conditions like diabetes or a history of cancer, cover is often achievable, though full disclosure and potential specialist advice are key.
Meet our Expert…
Thomas Heyes, senior protection adviser with The Insurance Surgery, is here to answer your insurance questions. You can read more about him and the business in our profile of The Insurance Surgery.
If you have a question about life insurance leave a message in the comments below or email kate.saines@emap.com
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