INSURANCE FOR A MORTGAGE: Importance, Options and Costs

insurance for a mortgage

Now is the time to consider insurance to protect the property you’ve worked so hard to acquire.
In this section, we will look at the various types of insurance, like life insurance, that you may want to consider when taking out a mortgage.

What is the Purpose of Mortgage Insurance?

Mortgage payments are one of the most significant bills people face, accounting for approximately 18 percent of combined household income each month, or 24 percent if you live in London. With this in mind, consider how you’d continue to pay your mortgage if you or your partner lost your source of income.

If it would be difficult, or if you are self-employed and thus ineligible for sickness or redundancy pay, mortgage protection insurance, also known as mortgage payment protection insurance, may be right for you.

Types of insurance to consider when getting a mortgage

#1. Insurance for Buildings

Although it is not required by law, most mortgage lenders require that you have building insurance in place when you exchange contracts. This is when you legally own the property and are in charge of the structure.

It protects you from the cost of repairing or rebuilding your home from scratch if it is damaged. It’s critical to think about getting the coverage you require.

Building insurance typically covers the following:

  • the building’s structure
  • Kitchens and bathrooms, for example, are examples of permanent fixtures and fittings.
  • garages and garden sheds are examples of exterior structures.

If you’re buying a leasehold house or flat, you’ll still need buildings insurance, but you might not have to arrange it yourself. Typically, the landlord who owns the freehold bears the brunt of the blame. However, this is not always the case, so you should ask your solicitor who is responsible for insuring the building.

#2. Insurance for personal belongings

As moving day approaches, you might want to think about contents insurance to protect your belongings as well. You should never underestimate the value of your possessions, from your television to your washing machine.

You’d need enough contents insurance to cover your losses if you ever needed to replace them. Buildings and contents insurance may be less expensive when purchased together, but they can also be purchased separately.

#3. Insurance on one’s life

You do not need life insurance to obtain a mortgage. However, if you have loved ones who rely on you financially, you should think about it.

Life insurance can provide the peace of mind that your loved ones will be taken care of if you die. It may imply that your family will not be saddled with the responsibility of paying off your mortgage or risking having to sell and relocate.

The amount of life mortgage you’ll need is determined by the size and type of mortgage you have. You should also consider any other debts you may have, as well as the money required to care for dependents such as a partner, children, or elderly relatives.

#4. Protection against critical illness

Life insurance protects you in the worst-case scenario. However, it’s also important to think about how you’d pay your mortgage if you couldn’t work due to illness. If you become ill unexpectedly, critical illness insurance can help you and your family. Because insurance policies differ, it’s worth double-checking what illnesses are covered.

Critical illness insurance frequently includes items such as:

  • cancer
  • coronary artery disease
  • strokes

Critical illness insurance is typically provided as a lump-sum payment upon the diagnosis of a specific illness.

Having that money on hand can provide some comfort during a difficult time. It can be used to pay off your mortgage, cover rehabilitation costs, or get you back on your feet.

#5. Insurance against loss of income

This type of insurance provides financial assistance if you are unable to work due to an accident or injury. You don’t need it to get a mortgage, but it can serve as a safety net if something goes wrong.

Income protection provides a tax-free monthly benefit to help cover your loss of earnings. It enables you to keep up with your mortgage payments, for example. That way, you can concentrate on your recovery rather than worrying about money.

If you are employed, you may be entitled to Statutory Sick Pay if you are unable to work due to illness. Your employer will cover this for up to 28 weeks. Some employers, but not all, provide additional income protection as a benefit. It may also be limited, so it’s worth double-checking what your benefits entail. Income protection maybe even more important if you are self-employed or a freelancer.

What is Mortgage Life Insurance?

Mortgage life insurance, also known as mortgage protection, is a type of insurance that pays out if you die before finishing your mortgage payments.

Its goal is to keep anyone you leave behind from having to worry about making monthly payments or having to sell the property to repay the amount still owed.

There are two types of mortgage insurance:

#1. Decreasing term – the payout decreases in proportion to your mortgage balance.

This is the most common and usually the cheapest option because the amount you’re covered for decreases as you pay off your mortgage (though your monthly payments stay the same). This leaves enough money for your dependents to pay off the rest of the mortgage.

It is thus intended for the repayment of mortgages. This is the most common type, in which the amount borrowed is fully repaid at the end of the term.

This guide focuses on these policies, but it’s always worth looking into level-term insurance as well. If the policies aren’t too far apart, level-term may be a better option because it provides more coverage.

#2. Level term: A policy with a fixed payout for the duration of the policy.

These policies are typically more expensive because they pay a defined lump sum if you die within a specific time frame, such as £200,000 if you die within the next 18 years. However, if you want to leave a lump sum for your dependents to cover more than just your mortgage, for example, other debts and/or ongoing spending, this may be a better option.

Level-term is also likely to be a better bet if you have an interest-only mortgage, as the lump sum would be available to cover the capital rather than just the repayments.

What is the distinction between mortgage life insurance and term life insurance?

Mortgage life insurance is specifically designed to pay off outstanding debts in the event of your death. Because the amount owed on your mortgage decreases over time, the payout amount usually decreases as well.

Level-term life insurance is distinct. If you die during the policy term, it pays out a fixed cash lump sum to your beneficiaries. The payout remains constant.

Which do I require?

It all depends on your situation. People frequently choose to purchase decreasing term life insurance in addition to level term life insurance. That way, any outstanding mortgage debt is covered, and additional funds are available as a payout to support loved ones as well.

Is it a good idea to get mortgage life insurance?

If anyone relies on your income to pay the mortgage and would struggle to make payments without you, a mortgage life insurance policy can be a low-cost way to ensure they have a financial lifeline when you’re gone.

However, you are not required to have life insurance. So you must decide whether the monthly cost is worth it for you. To assist, consider the following two key points:

#1. You don’t need life insurance if you don’t have any dependents.

You may not need mortgage life insurance (or any other type of life insurance) if no one depends on your income to pay the mortgage, such as your partner and/or children. It would, however, imply that whoever inherits your property may be forced to sell it unless they are able to pay off your mortgage or obtain a mortgage on the property themselves.

#2. If you already have a life insurance policy, you’re probably covered.

You may not have ‘mortgage insurance,’ but if you already have a level-term life insurance policy, your dependents will receive a lump sum if you die. However, if they intend to use the insurance payout to pay off the mortgage, you must ensure that the amount you’re covered for exceeds the amount you owe and that the policy is in effect for the duration of your mortgage term.

How to Reduce the Cost of Mortgage Insurance Quotes

Never accept a policy that your mortgage company offers without question. These are frequently exorbitantly priced, and you are under no obligation to purchase them; mortgage life insurance is completely separate from your mortgage agreement and lender.

Instead, obtain quotes from a number of insurers. However, unlike other types of insurance, such as a car or home insurance, the cheapest prices are not available on common price comparison websites. In general, going to a broker will get you the cheapest quotes. However, there are two options:

#1. Getting advice from a broker is ideal if you need assistance in making a decision.

If you’re not sure what type of policy you need, or if you have complicated medical conditions or other circumstances, it’s a worthy idea to seek advice before purchasing coverage. This requires the advisor to take a commission, so it’s not the cheapest way to buy – but it should result in the best policy.

To locate a life insurance adviser, visit the British Insurance Brokers Association’s website and use their ‘Find insurance’ search. When asked what you want to insure, make sure to select ‘Life insurance.’

#2. Purchasing from a discount broker is best if you know exactly what policy you want.

You can go through a specialist discount broker if you know what you’re doing. This is the cheapest way to buy life insurance, but it does require you to know what kind of policy you want.

These brokers are the cheapest because they pass on the commission they receive from the insurer to you at a discount. You may still have to pay a fee to use these brokers, but it’s usually around £25 and can save you thousands of pounds over the life of a policy when compared to buying from a bank or directly from an insurer.

We’d recommend checking at least the first two and adding the third if you have time, and remember, if you’re not sure what you’re doing or if a policy is appropriate, it’s probably best to seek advice.

  • Online Cavendish
  • Moneyworld
  • Money Manager


  • If you call any of these companies before making a purchase, make sure you understand whether you’re receiving ‘advice’ or ‘information’ – ask the person you’re speaking with.
  • If they are advising you, they must thoroughly investigate your financial and medical circumstances, as well as your insurance needs, before making policies.
  • Also, if they are simply providing you with policy information or answering your questions, that is fine, but you should not be pressured to choose one policy over another.

How to File a Complaint Against Your Insurance Company

The insurance industry does not always have the best reputation for providing excellent customer service. Furthermore, while a provider may be beneficial to some, it may be detrimental to others.

Common issues include claims that are not paid out on time or at all, unfair charges, and exclusions that are hidden in the fine print.

Insurance for a Mortgage FAQs

What does insurance on a mortgage cover?

Mortgage life insurance covers the outstanding balance on your mortgage, which decreases as the mortgage is paid down. When you pay off your mortgage, your mortgage life insurance coverage ends.

How much does it cost to insure your mortgage?

The cost of PMI is determined by several factors, including the loan size and your credit score. According to the Urban Institute’s mortgage insurance data, you can expect PMI to cost between 0.58 percent and 1.86 percent of the loan amount, whether paid monthly or in a lump sum upfront.

How long do you pay mortgage insurance?

If you put down less than 10%, you must pay the annual mortgage insurance premium, or MIP, in monthly installments for the life of the FHA loan. If you put down more than 10%, you will have to pay MIP for 11 years.

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The cost of PMI is determined by several factors, including the loan size and your credit score. According to the Urban Institute's mortgage insurance data, you can expect PMI to cost between 0.58 percent and 1.86 percent of the loan amount, whether paid monthly or in a lump sum upfront.

" } } , { "@type": "Question", "name": "How long do you pay mortgage insurance?", "acceptedAnswer": { "@type": "Answer", "text": "

If you put down less than 10%, you must pay the annual mortgage insurance premium, or MIP, in monthly installments for the life of the FHA loan. If you put down more than 10%, you will have to pay MIP for 11 years.

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