What insurance do you need when buying a house?

What is mortgage protection insurance (MPPI)?

Mortgage protection insurance (MPPI) is a type of mortgage insurance designed to cover your monthly mortgage repayments if you can’t work due to illness, injury, or redundancy. Unlike life insurance, which pays out a lump sum, MPPI provides regular payments, usually for up to 12 or 24 months, so you can keep up with your mortgage while you recover or find new employment.

By taking out mortgage protection insurance, you reduce the risk of falling behind on payments and potentially losing your home if your income drops unexpectedly. Policies vary, so it’s important to compare cover levels, exclusions, and payout periods to find the right mortgage insurance for your needs.

What does mortgage protection insurance cover?

Mortgage insurance typically covers:

• Loss of income due to redundancy (if included in the policy)

• Being unable to work because of illness or injury

• Regular monthly mortgage repayments for a set period, usually 12–24 months

• Optional cover for other essential bills alongside your mortgage payments

Mortgage insurance usually does not cover:

• Pre-existing medical conditions you knew about before taking out the policy

• Voluntary redundancy or resignation

• Job loss due to misconduct or dismissal for performance reasons

• Income loss caused by self-employment winding down or business closure without specific cover

• Mortgage arrears built up before the policy starts

Because mortgage insurance policies vary, always check the terms and exclusions so you know exactly what protection you’re getting.

Do I need mortgage insurance?

You don’t always have to take out mortgage insurance, but it can provide valuable protection if you’d struggle to pay your mortgage due to illness, injury, or job loss. Without mortgage insurance, you risk falling behind on payments which could lead to repossession.

Some lenders may require certain types of mortgage insurance, such as buildings insurance, as a condition of your mortgage offer. Other policies, like mortgage protection insurance (MPPI) or life insurance, are optional but can give you and your family peace of mind by covering repayments if your income drops.

Whether you need mortgage insurance depends on your personal circumstances, your savings, and how easily you could keep paying your mortgage without your regular income.

What other mortgage insurance do you need when buying a house in the UK?

There are four types of mortgage insurance you should consider:

• Buildings insurance: To cover the rebuild costs if something happens to your home.

• Life insurance: To cover the cost of paying off your mortgage, if you die before it is paid off.

• Critical illness cover: To help cover the cost of paying off your mortgage if you get diagnosed with a life-changing condition.

• Income protection: To help cover your mortgage payments each month if you are unable to work due to an accident, sickness or redundancy.

Buildings insurance for your mortgage

This type of insurance is usually compulsory if you have a mortgage, and could save you a fortune if something damages your home, like a fire or flood.

Without building insurance, you would need to foot the bill to rebuild your home, while continuing to pay your mortgage at the same time.

Here is more information about buildings insurance

Life insurance and your mortgage 

A life insurance policy could pay off your mortgage if you die during the term of the policy. There are two types you could consider:

• Level term life insurance: This would pay out an amount chosen by you, if you die during the term of the policy.

• Decreasing term life insurance: This costs less than a level term policy because the payout reduces over time. You could set up this type of policy to reduce its payout at the same rate as your mortgage balance each month.

• You can also take out a whole of life life insurance policy that pays out even after the mortgage has finished. This type of insurance tends to be classed as an investment and is more expensive than other types of life insurance

Here is more information about life insurance

Critical illness cover and your mortgage

This type of insurance pays out a lump sum if you get diagnosed with a serious condition, like cancer or if you suffer a stroke.

Serious conditions that you live through could stop you from working and earning money, putting your home at risk of repossession, but they are excluded from most life insurance policies. 

Each policy has a list of conditions it covers, and a list of exclusions, so check before you buy.

There are three types of critical illness cover:

• Increasing cover: The payout amount and premiums rise with the rate of inflation each year.

• Level cover: The payout and premiums stay the same throughout the policy.

• Decreasing cover: Premiums are usually lower compared to level cover, but the payout reduces each month. You can use this to follow your mortgage as it is repaid.

Some insurers let you add critical illness cover to a life insurance policy when you apply.

You will not always get a better deal if you buy the two together, so shop around for both to find the best cover for the cheapest price.

Here is more information about critical illness cover

Income protection for mortgage repayments

If you become ill, have an accident or even become redundant, an income protection policy could pay you an income until you can work again.

These policies can cover you up to a set percentage of your income, e.g. 65%, or up to a set monthly amount, e.g. £2,000.

You could find a policy that lasts for just a year, or up to your retirement date. The longer the policy, the more expensive it is.