Protection

🛡️What is mortgage protection, really?

"Mortgage protection" isn't one thing, it's a stack of separate insurance products designed to cover three different bad scenarios: death, serious illness, and inability to work. Each one is a different policy, with different rules, different costs, and different decisions to make.

Most homeowners only have life insurance, usually because the lender mentioned it during the mortgage process. But statistically, you're far more likely to be unable to work for 6+ months due to illness or accident than you are to die during your mortgage term. Income protection is the cover most people lack and most need.

⚰️Life insurance, level vs decreasing

Life insurance pays out a lump sum if you die during the policy term. Two main flavours:

Decreasing term assurance, the payout reduces over time, designed to mirror your mortgage balance falling. By the end of a 25-year mortgage, your remaining balance is near zero, so the insurance payout is too. Cheap, suitable for repayment mortgages, and the industry default.

Level term assurance, the payout stays the same for the whole term. £200,000 of cover at year 1, £200,000 at year 24. More expensive than decreasing term, but the right call for interest-only mortgages (where the balance doesn't drop) or if you want extra cover for the family beyond just the mortgage.

Whole-of-life, pays out whenever you die, not within a fixed term. Much more expensive. Usually only used for inheritance tax planning, not mortgage protection.

🏥Critical illness cover

Critical illness cover (CIC) pays out a lump sum if you're diagnosed with one of a defined list of serious illnesses, typically cancer, heart attack, stroke, multiple sclerosis, and others. The exact list varies between insurers and you should read the policy before assuming coverage.

The honest reality: CIC sounds great in the brochure, but the conditions covered are specific versions of those illnesses. "Heart attack" usually means a heart attack of a defined severity. "Cancer" usually excludes early-stage skin cancer and some others. Read the definitions before relying on it.

That said, when CIC pays out, it pays out a tax-free lump sum at exactly the moment your financial situation is collapsing. Worth having for serious illnesses where you'd need money to cover loss of income, treatment, or home adaptations. Often combined with life insurance on the same policy at a discount.

💼Income protection, the underrated one

Income protection (IP) replaces a percentage of your income, typically 50 to 65%, if you can't work due to illness or injury. Pays monthly, not as a lump sum. Continues until you're back at work, retired, or the policy ends.

This is the cover most people don't have but most need. According to the Association of British Insurers, the most common claims are for musculoskeletal conditions (bad backs, joint problems) and mental health, not the dramatic illnesses you'd expect. Statutory sick pay in the UK is around £116/week. Most employers pay full salary for 1 to 6 months, then drop to SSP. After that, you're on your own, which is what IP covers.

Two key choices when buying:

Deferred period, how long you wait after stopping work before the policy starts paying. Typically 1, 2, 3, 6, or 12 months. Longer deferral = cheaper premium. Match it to how long your employer would keep paying you.

Definition of incapacity, "own occupation" pays out if you can't do your specific job. "Suited" pays only if you can't do work suited to your skills. "Any occupation" pays only if you can't do any work at all. Always go for own occupation if available.

📐How much cover do you actually need?

Life insurance, at minimum, enough to clear the mortgage. Better: mortgage + 3 to 10× annual household expenses, so the family can stay in the house and continue living for several years.

Critical illness, most people opt for the same amount as their mortgage, but you can buy a smaller "lifestyle" amount (£25k, £100k) if budget is tight. The point is to clear medical-related debt and bridge income gaps.

Income protection, typically up to 50 to 65% of your gross income. You can't insure 100% of salary because the insurer doesn't want you better off claiming than working.

Joint policies (covering you and a partner) cost less than two single policies, but pay out only once. If you both die simultaneously (rare but happens), you only get one payout. Two single policies cost more but give twice the maximum cover. For couples with kids, two single policies usually wins.

⚠️Why most homeowners are underinsured

Three reasons:

1. They got it set up at mortgage time. Lender mortgage advisers often quote a basic life insurance policy. It clears the mortgage and that's it. Critical illness and income protection are "for next time".

2. Life moves on but cover doesn't. You bought a £150k policy 10 years ago. Since then you've moved to a £350k house, had two kids, and your salary has doubled. The original cover is woefully short. Reviewing protection at every remortgage catches this.

3. They think the NHS / state benefits cover it. They don't. Universal Credit replaces a fraction of typical earnings. SSP is around £6,000/year. The NHS treats you, but doesn't pay your mortgage while you recover.

💸What it actually costs

Premiums depend on age, health, smoker status, and the cover amount, but for a healthy non-smoker in their 30s, ballpark figures:

Life insurance (decreasing term, £200k, 25 years): roughly £6 to £15/month.

Critical illness cover (£200k, 25 years): roughly £25 to £60/month, by far the most expensive of the three.

Income protection (60% of £40k salary, to age 65): roughly £25 to £60/month.

A complete protection package (life + critical illness + income protection) for the average mortgaged family is typically £60 to £120/month. That's less than a Sky subscription, for the peace of mind that the mortgage gets paid no matter what. The earlier you set it up, the cheaper the premium, they only go up with age.