What insurance do you need for a mortgage?

There are a million and one things to think of when you’re moving house, but do you need cover in place to even be accepted for a mortgage and if so, what kind?   Read on to find out.

Abbie Laughton-Coles
Abbie Laughton-Coles
Updated 6 July 2022  | 3 mins read

Key points

  • There’s no legal requirement to purchase insurance when taking out a mortgage, but some lenders state that you must have buildings insurance or life insurance in place
  • Your lender may try to sell you insurance with the mortgage, but you don’t need to take it
  • Income protection options may help you meet your mortgage repayments if you’re unable to work

What's required by law and what’s not

It isn’t a legal requirement to have any type of insurance in place to be accepted for a mortgage.

However, the vast majority of lenders will require you to have adequate buildings insurance as part of the terms and conditions of the mortgage. They may even reject your choice of policy if they feel it doesn’t provide enough cover for your property.

Some mortgage lenders may even stipulate that you need life insurance, so always check the terms and conditions.

Do mortgages come with insurance?

You might be able to find a lender that includes buildings insurance in its mortgage offer, but it doesn’t mean that it’s right for you.

Always check whether the policy provides enough cover and has the features you require.

Alternatively, your lender may try to sell you cover during the mortgage process, and this could be for buildings, contents, life or income protection insurance. Just remember that you’re not required to purchase insurance through your mortgage provider.

You may want to get a quote but then shop around and compare policies from other insurers to see how it stacks up.

Different types of insurance to consider

Buying a house is a huge financial undertaking, which makes finding the right cover extremely important, so you know that you’re protected if something goes wrong.

Make sure you look at the level of cover when comparing home insurance policies as well as the price. Consider buying a combined buildings and contents insurance instead of just contents cover. The cheapest option may not provide you with enough cover and you could find yourself out of pocket if a big cost arises that isn’t included in your policy. Consider factors such as the area you live in and the history of your house. 

Consider the following types of insurance when applying for a mortgage:

Buildings insurance

As mentioned above, this may be a condition of your mortgage loan. It covers the physical structure of your home if it’s damaged or destroyed by an unexpected event.

The cost of your buildings insurance will be determined by a number of factors including where you live, the number of bedrooms it has and the type of property – bungalow, terraced or semi-detached, for example.

You’ll want your policy to begin on the date the contracts are exchanged as you’re responsible for the property from then on, not once you have moved in or the completion date.

Contents insurance

It’s very unlikely that taking out contents insurance will be a condition of your mortgage, but it’s really important to have it in place to protect your belongings.

It covers anything that you would take with you when you move like furniture, decorations and clothing.

Buildings only policy covers things like damage to the structure of the building (for example fire, flood, extreme weather) but can also include damage caused by a break-in. However, if your personal possessions are stolen, you would need to have contents insurance policy in place to be compensated - this can be a stand-alone policy or a combined buildings and contents policy. 

You can calculate the value of your belongings using our contents calculator.

Life insurance

Certain lenders may require you to have a life insurance policy in place to be accepted for a mortgage.

This is so they can be assured that the mortgage would be paid off if you died during the term. It can also provide your family and loved ones with peace of mind that they won’t have to struggle to afford repayments or sell the house if you weren’t there anymore.

The type of life insurance you choose will depend on the type of mortgage you have.

Critical illness cover

This type of insurance usually pays out a lump sum if you’re unable to work due to a condition that’s stated in the policy’s terms and conditions, for example a stroke or heart attack.

This money could help cover your mortgage payments and other bills while you’re recuperating.

Income protection insurance

You could receive monthly payments if you’re unable to work because of an accident, illness or redundancy. This can help you cover your mortgage payments until you’re back at work.

There are both short-term and long-term policies available and you can typically cover up to 70% of your salary. There’ll be a deferment period to watch out for though – this is the agreed amount of time between you falling ill and when you receive the first payment. Specific terms and conditions depends on your indivdual policy so check the details before purchasing a policy. 

Mortgage payment protection insurance (MPPI)

This is a type of income protection that specifically covers your mortgage payments if you’re unable to work due to accident, illness or involuntary redundancy.

It will usually cover payments for up to 12 months or until you return to work, whichever comes first.

The money will be paid to you, rather than the mortgage lender.

Payment protection insurance (PPI)

PPI is used to cover one particular type of debt and the monthly payout is sent straight to the lender.

It can be used for loan, credit card or mortgage repayments.

It’s similar to MPPI in that it will provide cover for up to 12 months if you’re unable to work because of an accident, illness or involuntary unemployment.

Accident, sickness and unemployment insurance

You’ll receive a portion of your salary each month if you’ve had an accident, are ill or are made involuntarily redundant. This can be used for whatever you want, including mortgage repayments.

Chancel repair liability insurance

If your new property is located within the boundaries of a parish church that was built before 1536, you may be liable to pay towards any chancel repairs even if you’re not a member of the church.

It’s unlikely to happen but this type of insurance provides cover if you’re sent a bill by the local church.

Remember…

You don’t want to double up on cover, so make sure that you only purchase insurance that you really need and check that you’re not already protected under a different policy.

Whatever type of insurance you’re looking at, always check out the terms and conditions as well as the price to get a full picture of what you’re purchasing. The cheapest policy isn’t always the right one for you.