Mortgage protection insurance: what it is and what it actually covers
No lender in the UK legally requires you to buy protection insurance to get a mortgage (though buildings insurance is a condition of most mortgages). However, several types of insurance product are commonly associated with mortgages and serve different purposes.
Life insurance: level term vs decreasing term
Term life insurance pays a lump sum on death within a specified term. For mortgage protection, two structures are commonly used:
- Level term — the payout is fixed throughout the policy. A £200,000 policy pays £200,000 whether you die in year 1 or year 24. Costs more than decreasing but provides broader protection (could clear the mortgage and leave additional funds).
- Decreasing term — the payout reduces over time, broadly in line with a repayment mortgage balance. It is designed specifically to clear the mortgage and nothing more. It costs less than level term because the insurer's exposure falls each year.
Joint life policies pay out on the first death only. Two individual policies pay out independently — potentially twice (once on each death). For couples, two individual policies typically offer better overall value despite slightly higher combined cost.
Critical illness cover
Critical illness cover pays a lump sum on diagnosis of a specified serious condition — typically cancer, heart attack, stroke, and others (the exact list varies by insurer). It can be added to a life insurance policy or taken separately.
The payout can be used to clear the mortgage, adapt the home, cover lost income, or anything else. Unlike income protection (see below), it pays once as a lump sum, regardless of how long you are unable to work.
Definitions matter: policies define exactly what qualifies as a covered condition. A less serious heart attack may not meet the threshold for a payout on some policies. The Association of British Insurers (ABI) publishes comparative data on claim rates and definitions.
Mortgage Payment Protection Insurance (MPPI)
MPPI is a short-term income protection product specifically designed to cover your mortgage payment if you are unable to work due to accident, sickness, or (in some policies) redundancy. It typically pays for 12–24 months maximum.
Key points to check in any MPPI policy: the waiting/deferral period (the number of days you must be off work before the policy pays — commonly 30, 60, or 90 days), the definition of incapacity used, and the exclusions for pre-existing conditions.
Income protection insurance
A longer-term product than MPPI. Income protection pays a proportion of your salary (typically 50–70%) if you are unable to work due to illness or injury, continuing until you return to work or the policy term ends. Some policies pay until state pension age if necessary.
It is not mortgage-specific — the payout can cover the mortgage and other costs of living. It is typically more expensive than MPPI but provides substantially greater and longer-lasting protection.
What employer sick pay covers
Before buying any protection, it is worth understanding what you already have. Statutory Sick Pay (SSP) is £116.75/week (2025/26) for up to 28 weeks. Many employers offer enhanced sick pay — contractual sick pay above SSP — which may continue for months before reducing to SSP only. Checking your employment contract or HR policy clarifies what income you would receive before protection insurance becomes necessary.