When it comes to your mortgage it is probably the biggest and most important monthly cost you have to cover.
Given this many of our clients want to make sure they are protected should something happen and want to know what it will cost to keep a roof over their heads.
The answer as always is that it depends, it will depend on which Mortgage Protection Insurance you choose and a range of personal and policy factors.
In this guide we will walk through the various options available, how they work and the most cost effective way of setting up your cover.
What Is Mortgage Insurance?
To start with it’s important to understand what Mortgage Insurance is. For many not being able to afford mortgage repayments is a real and genuine concern. However it is a concern that can be put to bed by putting Mortgage Protection in place.
Should you suffer unemployment, fall ill, or even worse pass away, a Mortgage Protection policy would payout and allow you or your loved ones to continue paying your mortgage.
The Different Types Of Mortgage Protection
When it comes to Mortgage Protection there are two distinct products which you can choose from. These are:
- Mortgage Payment Protection Insurance
Covers your monthly mortgage repayments for up to 24 months if illness or injury stops you working.
- Mortgage Life Insurance
Pays off your entire mortgage so your loved ones can stay in the family home without worrying about mortgage repayments if you’re sadly no longer around.
Both protection products can help to relieve the financial stresses that come with having a mortgage, however they’re very different products which are designed to cover you in different ways. Because of this they also vary in terms of cost.
It’s important to get cover that’s tailored to your individual circumstances and needs, as what’s right for one person won’t be what’s right for another.
For example, one person might feel they need both types of mortgage protection whereas another based on their circumstances might just need life cover.
So how do you know which one is right for you?
What Is Mortgage Payment Protection & What Does It Cost?
If you were unable to work due to accident, sickness or unemployment, Mortgage Payment Protection Insurance (MPPI) would cover your monthly mortgage repayments.
If you need to make a claim a policy will pay out a monthly benefit that allows you to keep up with your mortgage repayments for up to 12 or 24 months.
As well as this, you can cover an additional 25% of the mortgage repayments to help meet other costs, such as bills and everyday expenses.
Example Cost Of Mortgage Payment Protection In 2023
Like with all insurance policies, the cost of your premiums will be determined by your personal circumstances and the type of policy you opt for.
To provide you with some useful examples we have calculated the cost of a Mortgage Payment Protection policy for a 30 year old who:
- is in an office based role as a marketing manager
- has no pre-existing health conditions
- is a non-smoker
- wants the policy to pay out for up to 2 years
We have compared Mortgage Protection Insurance quotes from all the top UK insurers including Vitality, Aviva and Legal and General and used the cheapest option for each example.
Policy Factors Affecting The Cost Of Mortgage Payment Protection
When it comes to putting Mortgage Protection Insurance in place, there are a number of policy factors which will also affect the amount your pay for your cover.
Increasing The Level Of Benefit Ups The Cost
As Mortgage Payment Protection Insurance is designed to cover your mortgage, the level of benefit you choose should align with your monthly repayments.
Cost of premiums will depend on how much your monthly mortgage payments are. The higher the level of benefit you need, the more your premiums will be.
Many of the mortgage specific policies will let you cover an additional 25% on top of your mortgage payment whilst some of the income protection providers will let you cover up to 70% of your gross income regardless of your mortgage repayments.
Budget Cover Is Cheaper Than Full Term Claims Cover
Many mortgage payment protection policies are short term in nature and will only pay a claim for a limited time often up to a maximum of 2 years.
This is considered a budget income protection policy and there are more traditional plans that will continue paying a claim until the end of the policy regardless of how long you are out of work.
The end of policy could align with the end of your mortgage or as long as your expected retirement age.
It is important to note leading insurer LV= has an average income protection claims length of 7 years. If budget suffices it is certainly worth considering long term protection even though it is more expensive.
The Longer You Will Need Cover The More It Will Cost
Policy length will also affect the cost of your monthly premiums.
For example, someone who opts for a policy cease age of 55 will have cheaper premiums than another individual who selects a cease age of 65 as they wouldn’t need the cover for as long.
In reality you will either align the length of cover with the end of your mortgage term or align with your expected retirement age.
Your Deferral Period Or The Length Of Time You Can Wait To Claim Can Reduce Your Premiums
When you put a policy in place you will have the option of selecting a deferral period. This is the amount of time that you have to be out of work due to accident or sickness before any claim will be paid.
Most people will align their deferral period with their sick pay so that when it stops their Mortgage Protection kicks in and continues to pay their monthly repayments.
It’s important to take into consideration your sick pay and any savings you have which could give you the option of extending the deferral period you select.
If you can rely on savings and sick pay for up to 3 months if you were unable to work you could reduce your insurance premiums by up to 35%.
Your Choice Of Premiums
When selecting a Mortgage Payment Protection plan there are three different premium types to be aware of. The price you pay for a policy will vary depending on which you select.
- Age Banded
Monthly premiums rise significantly with age. These particular premiums can seem like a cost effective option when taking out a policy, however they can increase by over 5 times as you age.
Monthly premiums remain fixed over the entire life of a policy. Although these premiums will seem more expensive initially, over the life of a plan it can work out less costly.
The insurer has the right to change monthly premiums over time. Although initially these premiums are cheaper, there is a risk that the monthly cost may become too high as you get older or if the insurer experiences a notable peak in claims in a given year.
Putting Mortgage Protection in place can be confusing so it’s always best to speak with an expert such as one of the team at Drewberry if you are unsure of what you need.
Don’t hesitate to get in touch if you do have any questions just pop us a call on 02084327333, or you can email email@example.com.
What Is Mortgage Life Insurance & What Does It Cost?
Unlike Mortgage Payment Protection Insurance, which would provide you with a monthly payment to cover your mortgage, Mortgage Life Insurance is designed to pay off your outstanding mortgage debt with one cash lump sum should you pass away.
It’s important to think about how your loved ones would cope if you were no longer here. Could they cope financially? Would they be able to afford the mortgage?
Mortgage Life Insurance can provide peace of mind for you and them, knowing that if the worst were to happen they would be able to clear the outstanding mortgage and stay in your family home.
Example Cost Of Mortgage Life Insurance in 2023
The cost will vary depending on a number of personal and policy factors such as your age, health and the benefit amount you opt for.
To help give you an idea of what a basic policy would cost, we’ve calculated the cost of premiums for a 30 year old and assumed that they:
- have no pre-existing conditions
- are a non-smoker
- want a single policy for a term of 25 years.
We have compared Mortgage Life insurance quotes from all the top UK insurers including Aviva, Liverpool Victoria and AIG and used the cheapest option for each example.
Policy Factors Affecting The Cost Of Mortgage Life Insurance
Similar to any other insurance policy there are a range of options and factors which can increase or lower the cost of your cover. If you are working with a tight budget you can use these factors to tailor your policy and make it more cost effective.
The Cost Will Increase The More Cover You Need
It’s simple, the more you want a policy to pay out, the higher your premiums will be. For example if you take our 30 year old from above, when we increased the level of cover needed by £100,000, premiums increased from £7.09 to £8.54.
The Longer You Need To Be Protected The Higher The Premiums
The longer you want a policy to be in place the more your premiums will increase. This is due to the fact that you will be older when it ends and therefore be seen as higher risk in the eyes of the insurer.
How long you want your policy for will be determined by when your mortgage comes to an end.
For example if our 30 year old knows they will have paid off the outstanding balance by the time they are age 55, they would select a term of 25 years. If they don’t think it would be until they are 60 they would opt for a 30 year term.
Adding Critical Illness Cover Is Significantly More Expensive
One option you have when it comes to Mortgage Life Insurance is to add Critical Illness Cover to your policy.
By adding this optional extra to your cover, as well as paying out on your death, your policy would pay out if you were to become critically ill with any one of a number of serious illnesses such as:
- Heart Attacks
Where the risk of suffering a serious illness is so much higher than death adding Critical Illness Insurance has a significant impact on the overall cost of your policy.
If you are considering Critical Illness Cover you may want to look at Income Protection as a more affordable way of making sure your mortgage is repaid should you be unable to work due to an illness or injury.
Opting For Level Cover Is More Expensive Than Decreasing Cover
Depending on your mortgage, you might need level or decreasing cover.
Level cover sees the benefit fixed for the life of the policy. It’s therefore often used to cover interest-only mortgages, whereas decreasing cover sees the benefit fall with time, usually in line with a repayment mortgage.
If you opt for level cover you can expect premiums to be around 38% more expensive due to the fact the risk to the insurer remains fixed.
Including Your Spouse WIll Increase The Premiums
If you share a mortgage with someone you may want to take out a Joint Mortgage Life Insurance policy rather than single cover.
Covering two people increases the risk of a claim and is reflected in the cost of the monthly premiums.
When it comes to a joint policy, although two people are covered, it’s important to remember that it will only pay out on the first death.
Because of this it might be worth considering taking out 2 separate policies to ensure both parties are fully covered.
It is often only a little more expensive to take out 2 separate policies than joint cover even though it provides twice the cover.
Opting For Reviewable Or Guaranteed Premiums
When choosing a policy you will have the option of opting for reviewable or guaranteed premiums.
There is a significant difference between the two and the cost of a policy will vary depending on which one you choose.
- Guaranteed Premiums
Initially they tend to be more expensive compared to reviewable premiums but the remain fixed throughout the life of the policy.
- Reviewable Premiums
These tend to start off cheaper, however the total cost is usually higher over the life of the policy relative to plans with guaranteed premiums as the insurer has the right to increase the monthly premium they charge for providing cover.
Personal Factors Affecting The Cost Of Mortgage Insurance
There are a number of factors that can affect the amount you pay for Mortgage Protection Insurance. Some we have control over and others we don’t, and some are more obvious than others.
The Cost Increases With Age
It might seem unfair, but the older you are the more your Mortgage Insurance premiums will be. This is because with age comes greater health risks and greater chance of passing away. With greater risk comes greater premiums.
Your Health Can Affect The Cost Of Premiums
Whether it’s Income Protection, Life Insurance or Private Medical Insurance insurers will look at your medical history to determine what cover they can offer and at what cost. Because of this if you have a pre-existing condition which affects your health or that is life limiting, insurers will tend to:
- Provide cover but with increased premiums (loading)
- Exclude the condition you suffer from but offer discounted premiums
- Cover you without any exclusions and no premium loading.
If you have a pre-existing condition it’s best to speak with an expert, such as one of the team here at Drewberry to ensure you’re getting the best policy for your circumstances.
Pop us a call on 02084327333 or email firstname.lastname@example.org.
Smoking Increases The Cost Significantly
Due to the associated health risks with smoking, some insurers will charge you more for Mortgage Payment Protection Insurance. It’s important to understand what insurers class a ‘smoker’ as too.
It might be surprising, but even if you don’t smoke cigarettes you could still be faced with higher premiums if you vape or use nicotine patches. This is because for most insurers a smoker is classed as anyone who has used nicotine in the last 12 months.
If I Give Up Smoking Can Premiums Be Reduced?
Yes. The good news is, if you can prove you have given up and haven’t consumed nicotine in the last 12 months, most insurers will then class you as a ‘non-smoker’ and lower your premiums.
Higher Risk Occupations Can Be More Expensive
It’s true. The job you do can affect the amount you pay for protection. This is down to the simple fact that some jobs are higher risk than others. For example those working in construction are more likely to suffer an injury or even fatal accident compared to those in office based administrative roles. Because of this insurers tend to charge those in risker jobs more.
High risk jobs can include professions such as:
- Offshore Workers
Hazardous Hobbies Can Hike Up The Premiums
It’s not just high risk jobs that will see your premiums rise. Extreme and hazardous hobbies will also put you in a higher risk category in the eyes of most insurers.
So if you are a keen glider, a big wave surfer or a free solo climber, your premiums are likely to be over 25% higher than someone who doesn’t take part in such adventurous hobbies.
Hazardous sports which you can expect to increase your premiums include:
- Big wave surfing
- Off-piste skiing
- BASE jumping
- Free climbing
- Scuba diving
- Hand gliding
As each insurer will view occupations and hazardous sports differently, its best to speak with an expert such as one of the team here at Drewberry. By getting expert advice you can continue doing the things you love and have peace of mind knowing you are fully protected.
Pop us a call on 02084327333 or email email@example.com.
Does Mortgage Insurance Cover Redundancy?
Unemployment Insurance provides you with cover should you unexpectedly be made redundant.
There are mortgage payment protection policies where you can bolt-on redundancy insurance for an additional premium.
We have often found it to be more cost-effective to consider a standalone unemployment insurance policy.
Due to Covid-19 we are currently unable to advise on Unemployment Insurance because all UK insurers have withdrawn from the market.
Has Covid Increased The Cost Of Mortgage Protection?
Although our recent survey showed many UK workers think the price of insurance has increased as a result of Covid-19 this is not the case for Life Insurance or Accident & Sickness Insurance policies.
Many insurers have included blanket Covid-19 exclusions on new policies however as we return to business as usual these will be removed.
If I Make A Claim Will My Premiums Increase?
If you opt for a traditional Life Insurance or Income Protection policy with guaranteed premiums the price of your policy will not increase as a result of you making a claim.
Compare Mortgage Insurance Quotes & Get Expert Advice
When covering something as important as your mortgage it’s essential to understand what you’re buying. Making a mistake could have expensive consequences.
We can help you decide whether you need Mortgage Life Insurance or Mortgage Payment Protection Insurance (or potentially both).
We’ll also calculate the cost of Mortgage Insurance by comparing quotes from every leading UK provider.
Why Speak to Us?
We started Drewberry™ because we were tired of being treated like a number.
We all deserve a first class service when it comes to issues as important as protecting our health and our finances. Below are just a few reasons why it makes sense to talk to us.
For help and fee-free advice, don’t hesitate to give us a call on 02084327333 or email firstname.lastname@example.org.