Is mortgage payment protection the same thing as life insurance?

No, while mortgage payment protection insurance (MPPI) and life insurance can both protect your mortgage, they are separate products.

MPPI pays out during your working life, for example if you were made redundant or fell ill, whereas life insurance pays out when you pass away.

The average mortgage debt in UK is around £129,130[1], which is a big financial commitment. Highlighting the need to have the right protection in place.

With mortgage payment protection, the funds could be paid directly to you or your mortgage lender to cover these costs.

However, if you desire to secure your family's financial stability after your passing, it’s important to secure a life insurance plan.

Please note, Reassured don’t sell mortgage payment protection policies, but we can help you secure our best life insurance policy from our panel of insurers.

Why not get in touch with one of our friendly professionals today?

What is life insurance?

Life insurance is a type of policy designed to provide financial support to your loved ones after you pass away.

There are various types of life insurance policies available to cater to your specific needs and circumstances.

For instance, term life insurance offers cover for a predetermined period. If you were to pass away within this term (which can extend up to 40 years), the insurance provider will provide a pay out to your loved ones.

However, if you outlive the term, the policy will come to an end. Whereas whole of life insurance and over 50 life insurance both provide lifelong cover.

Having a life insurance policy can help protect your partner/family from the financial debts you may leave behind, as well as any future costs. This can include:

  • Mortgage / rent payments
  • Childcare
  • Household bills
  • Leaving a small inheritance / charity donation
  • Funeral costs (a basic funeral costs £4,141 on average[2])

There are many types of life insurance. What’s best for you will depend on your personal circumstances. However, these options tend to be the most popular:

  • Pays out if you pass away during a specified term
  • Fixed pay out up to £1,000,000
  • Term length from 2 - 40 years
  • Ideal to help protect an interest-based mortgage (due to the large fixed pay out potential)
  • Terminal illness cover included at no extra cost
  • Could also help to cover other debts and family living costs
  • Pays out if you pass away during a specified term
  • Pay out up to £1,000,000 (decreases throughout the term)
  • Term length from 2 - 40 years
  • Often the cheapest form of life insurance
  • Ideal for helping to protect a repayment mortgage (sum assured can reduce in line with your mortgage balance)
  • Terminal illness cover included at no extra cost

Although it’s not mandatory to have life insurance when securing a mortgage, the majority of individuals opt for term life insurance to protect their mortgage costs.

Some estate agents may also recommend to you to protect your mortgage with income protection or critical illness cover in case you’re unable to work and need to cover costs.

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Calculate how much life insurance you may need by filling in the costs you’d like your policy to cover.

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.

Source: Moneynerd.co.uk

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The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.

Source: Nimblefins.co.uk

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The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.

Source: Money.co.uk

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According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.

Source: SunLife.co.uk

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When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources: Daynurseries.co.uk, Primarytimes.co.uk & Savethestudent.org

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2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.

Source: Moneyage.co.uk

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If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.

Source: Scottishbusinessnews.net

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Can life insurance cover my mortgage?

Yes, life insurance can help towards covering mortgage costs but only in the event of you passing away while your policy is active.

Unlike mortgage payment protection, life insurance can help to protect many financial commitments for your loved ones, not just the mortgage.

Some people will take out a life insurance policy just to protect mortgage costs (also known as mortgage life insurance) by having term life insurance run alongside their mortgage term:

  • Decreasing term - For those with a repayment mortgage, the sum assured can decrease in line with the mortgage balance to help cover the remaining costs if you were to pass away
  • Level term - If you have an interest-based mortgage, the pay out from level term policies remains fixed over the term, ensuring that your mortgage payments are protected in the event of your death

Reassured can help compare level and decreasing life insurance policy quotes from leading UK insurers.

What is mortgage payment protection?

Mortgage payment protection acts as a safeguard to ensure that your monthly mortgage payments are covered in case you’re unable to afford them due to different circumstances, for example if you can’t work due to:

  • Illness
  • A serious injury
  • Redundancy

This insurance can help you avoid the risk of defaulting on your mortgage and to avoid repossession of your family home.

If you’re unable to pay your mortgage for a valid reason after a specific period of time, typically between 30 - 180 days, your provider can pay out a set amount every month.

Here are some key points to know about mortgage payment protection:

  • Provides cover to repay or reduce a mortgage or loan if you can’t work due to injury or serious illness
  • Also known as MPPI (Mortgage Payment Protection Insurance)
  • Policies can usually pay out a set amount each month for typically 12 consecutive months
  • Upon a successful claim, there’s a ‘waiting period’ of 30 - 180 days before the policy will pay out (also known as a deferred period)
  • The longer the waiting period, typically, the cheaper the policy is likely to be

If your employer offers sick pay or you have savings you could use to keep you afloat for a small period of time, you could take out a policy with a longer waiting period to save money.

Please note mortgage payment protection isn’t the same as Payment Protection Insurance (PPI). PPI was taken to help to cover repayments for unsecured debts / loans. Whereas MPPI is only taken for mortgage repayments.

Mortgage payment protection insurance isn’t currently sold through Reassured, although we can help you protect your mortgage costs through a life insurance policy should you pass away.

What are the different types of mortgage payment protection insurance?

You can get different types of mortgage payment protection insurance depending on your budget and personal circumstances;

  1. Unemployment only - Covers you only if you’re made redundant
  2. Accident and sickness - Covers you only if you have a long-term illness or suffer a serious injury, resulting in you unable to work
  3. Accident, sickness and unemployment - Covers you if you’re made redundant or if you have a long-term illness or suffer a serious injury resulting in you being unable to work

What is the price difference between mortgage payment protection and life insurance?

Life insurance can start from just £5 a day through Reassured.

For both life insurance and mortgage payment protection insurance, the cost of the premiums you pay can be based off factors such as:

Whilst Reassured don’t sell mortgage payment protection insurance, we have sourced some external MPPI prices[3] to compare against our life insurance quotes.

AgeMPPI
(Accident, Sickness & Unemployment)
Life insurance
(Level term)
Aged 30£29.78 per month£5.59 per month
Aged 40£39.77 per month£11.00 per month
Aged 50£51.28 per month£26.80 per month


Life insurance quotes are based on a non-smoker, in good health, for a level term life insurance policy with a term length of 20 years and £150,000 of cover.

MPPI quotes are based on non-smokers, office worker, they want £1,000 worth of cover up until the age of 65 with a 4 week deferral period, on a level basis.

Does mortgage payment protection insurance cover death?

No, mortgage payment protection doesn’t cover death.

The purpose of MPPI is to provide monthly pay outs to help you keep on top of mortgage payments when you’re unable to work and can't afford to pay them.

If you’re worried about protecting your mortgage after your passing, a life insurance policy could provide your loved ones with a lump sum pay out to cover these costs and keep them in the family home.

Mortgage life insurance is technically term life insurance that is purchased to run alongside your mortgage.

In the unfortunate event of your death, this policy can provide financial coverage to ensure that your loved ones aren’t burdened with the mortgage expenses.

Pros and cons of life insurance vs mortgage protection insurance

PROsCONs
Life insuranceCan help to cover a range of costs for your loved onesPossible to outlive the policy term (term-based cover)
One lump sum pay out to cover major costsThe policy will pay out after your passing, so it can’t help with the mortgage while you’re alive
Pay out could help to replace your income after your passing
Mortgage protectionYou can be paid back for the first 30 days that you were off work on day 31With ‘back to day one’ cover, you would wait 30 days before you are eligible for a claim. (The insurer will backdate the claim to the first day, so the benefit starts accumulating from the beginning)
Monthly instalments tailored to your mortgage paymentsMPPI covers only a specific debt so you can’t use it to help with other costs
Tax-free monthly paymentsOnly pays out for a limited time period (typically 1 to 2 years or until you return to work)

Why do I need mortgage life insurance or MPPI?

In the UK alone, more than 14 million adults over the age of 20 have a mortgage[4].

In March 2022 it was estimated that the average monthly mortgage payment was £753[5]. This can take up a large amount of the monthly salary for many, meaning if you were unable to work it could be difficult to make these payments.

Equally, if you were to pass away, would your loved ones be able to pay off the mortgage on a single income?

By having a form of cover in place, you can have the peace of mind that if you were unable to work or if you passed away, your loved ones would be able to keep a roof over their heads.

You could protect your home as well as your family from as little as 20p-a-day with life insurance.

Compare mortgage life insurance quotes

Whilst Reassured don’t offer mortgage payment protection cover, we can offer life insurance to help protect your mortgage.

We can compare life insurance quotes from some of the UK’s best insurers and help you find a great deal to help with the safeguarding of your loved one’s future and your family home.

Mortgages can be the biggest investment made in someone’s life; therefore, it’s crucial to secure the correct cover.

It’s not required to have both life insurance and mortgage payment protection, however if it’s within your budget this could provide a compressive solution.

By getting in contact with one of our friendly professionals, you’ll be able to find a life insurance policy suited to your own personal circumstances, quickly, efficiently and for an affordable price.

Sources:

[1] https://www.finder.com/uk/mortgage-statistics

[2] https://www.sunlife.co.uk/funeral-costs/

[3] https://www.drewberryinsurance.co.uk/mortgage-protection-insurance/mortgage-payment-protection-insurance

[4] https://www.theguardian.com/money/2023/jun/21/1-point-4m-uk-households-huge-hit-to-finances-mortgage-timebomb-payments-fifth-disposale-income

[5] https://www.money.co.uk/mortgages/uk-mortgage-statistics-and-facts

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