What insurance do I need for a mortgage?

February 8, 2024

79
For a mortgage in the UK, you’ll typically need buildings insurance as a minimum requirement from your lender. This insurance covers the cost of repairing or rebuilding your home if it’s damaged or destroyed. While not legally required, many homeowners also consider taking out life insurance, critical illness cover, and income protection insurance to ensure they can continue making mortgage payments in case of unforeseen circumstances.

Buildings Insurance

  • Requirement: This is typically mandatory when taking out a mortgage. Lenders require buildings insurance to protect the property from damage caused by fires, floods, subsidence, and other risks. The insurance should cover the rebuild cost of your home, not the market value.
  • Purpose: It ensures that, in the event of significant damage, you have the means to rebuild the property, safeguarding both your investment and the lender’s security.

Life Insurance

  • Not Mandatory but Recommended: Life insurance isn’t usually a requirement by lenders, but it’s strongly advised for homeowners with dependents.
  • Purpose: It provides a payout in the event of your death before the mortgage is paid off, which can be used to settle the remaining mortgage, ensuring your family or dependents can continue to live in the home without financial burden.

Critical Illness Cover

  • Optional: This insurance pays out a lump sum if you’re diagnosed with one of the specific medical conditions or injuries listed on the policy.
  • Purpose: Similar to life insurance, the idea is to cover the mortgage payments or pay off the mortgage in case you’re unable to work due to serious illness.

Income Protection Insurance

  • Optional: Offers support by providing a regular income if you’re unable to work due to illness or injury.
  • Purpose: It’s designed to cover a percentage of your salary and can be used to help meet mortgage payments and other living expenses during periods of incapacity.

Home Contents Insurance

  • Not Mandatory but Advised: This covers the contents of your home, such as furniture, personal belongings, and sometimes even cash, against theft, loss, or damage.
  • Purpose: While not directly related to the mortgage, it’s important for protecting the value of your possessions within the home.

Mortgage Payment Protection Insurance (MPPI)

  • Optional: MPPI covers your mortgage payments for a certain period if you can’t work due to accident, sickness, or unemployment.
  • Purpose: It’s designed to give you peace of mind that your mortgage payments will be covered in case your income is impacted. However, it’s important to read the terms carefully, as policies vary and there can be exclusions and waiting periods.

Choosing the Right Insurance

When selecting insurance related to your mortgage:
  • Assess Your Needs: Consider your circumstances, such as whether you have dependents, your health, and your job security.
  • Shop Around: Look for the best deals and make sure you understand what is and isn’t covered.
  • Get Advice: Consider speaking with a financial advisor or insurance broker to find the most suitable products for your needs.
While not all insurance types are mandatory for a mortgage, having appropriate cover in place can provide significant financial protection and peace of mind throughout the term of your mortgage.

Answered by:

Alison Gibson

Ascot Mortgage Expert

Last Updated:

19.02.2024

Answered by:

Alison Gibson

Ascot Mortgage Expert

Last Updated:

19.02.2024

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