Mortgages and insurance

When you take out a mortgage there are a number of insurance policies that you will need to consider.

Buildings insurance

Your mortgage lender will require that the mortgaged property is adequately insured by a suitable buildings insurance policy and this will be one of the conditions of your mortgage offer. Your lender will stipulate what risks the policy must insure against but typically this will include fire, flooding, subsidence and storm damage amongst others.

This does not mean that you must buy your buildings insurance from your lender. Instead, you are free to shop around and compare quotes in order to find a suitable policy at a competitive price. In fact, many insurance companies will offer a discount if you combine your buildings insurance and contents insurance together, so this can be a good way of saving money.

Life insurance

Your lender may require that you take out a life insurance  policy to pay off your mortgage should you die during the term of the loan. You may also wish to take out a life insurance policy in order to protect your family and dependents in the event of your death, particularly if they are likely to face financial hardship as a result.

There are two main types of life insurance: term insurance and whole-of-life insurance.

Term insurance is the simplest and usually the cheapest form of life insurance and is so called because you choose the term of the cover. The policy will only pay out if you die during the term, after that there is no payout. You can choose from level term or decreasing term; with level term insurance the lump sum payout remains at the same level throughout the term whilst with decreasing term insurance the lump sum payout will decrease in line with your decreasing debt.

Whole-of-life insurance pays out an agreed sum when you die, regardless of when that is.

Read our life insurance guide if you'd like more information.

Critical illness cover

This type of insurance is designed to pay out a lump sum if you are diagnosed with a critical or terminal illness, such as cancer, a stroke or kidney failure. It is usually taken in addition to life insurance but is also available as a stand alone policy.

Mortgage payment protection insurance (MPPI)

Also known as 'accident, sickness and unemployment (ASU) insurance', a typical policy will pay all or most of your monthly mortgage payment if you are unable to work due to accident, illness or redundancy.

Payment protection insurance (PPI)

Again, this is often known as 'accident, sickness and unemployment (ASU) insurance' and a typical policy will pay an agreed amount each month to cover your credit commitments should you be unable to work due to accident, illness or redundancy.

back to top

« Different types of mortgages

Other things to consider when choosing a mortgage »