Understanding Mortgage Protection Insurance Cost UK

Mortgage protection insurance, also known as mortgage payment protection insurance, is an essential safeguard that covers your mortgage payments in the event you die within the mortgage term. While it provides crucial financial security for your family, the costs can add up and are impacted by different factors.

Here, we break down the key elements that influence the monthly mortgage protection insurance costs for UK homeowners and provide some tips to help you lower these costs.

How Much Is Mortgage Protection Insurance UK?

The cost of mortgage protection insurance in the UK varies depending on several factors, including your age, health, job, lifestyle, the amount of coverage you need and the term of the policy.

This insurance is designed to pay off your mortgage if you pass away during the mortgage term, but there are also additional kinds of protection you can get if you’re unable to work due to illness, accident or injury during the term of the policy, such as critical illness cover and income protection. Obviously, getting these other types of protection can also impact the cost of your policy.

How Much Is Mortgage Protection Insurance Per Month?

Average Cost of Mortgage Protection Insurance

In the UK, the average cost of mortgage payment insurance can vary significantly, but below are some general estimates of the price.

  • Basic coverage: for a basic policy covering a mortgage payment of around £1,000 per month, premiums might start from £20 - £40 per month
  • Comprehensive coverage: for more extensive coverage, including both sickness and unemployment, premiums can range from £50 - £100 or more per month

Examples

Scenario 1: Single Coverage, Low-Risk Job

A 30 year old non-smoker with a desk job seeking to cover a £750 monthly mortgage payment for 12 months with a 60 day waiting period might pay around £25 per month.

Scenario 2: Comprehensive Coverage, Higher-Risk Job

A 45 year old smoker with a manual labour job seeking to cover a £1,200 monthly mortgage payment for 24 months with a 30 day waiting period might pay around £90 per month.

What Impacts the Cost of Mortgage Protection Insurance?

  1. Age: generally, the younger you are when you take out a policy, the lower your premiums will be
  2. Health: non-smokers and those in good health typically pay lower premiums
  3. Occupation: jobs considered higher risk may attract higher premiums, such as firefighters, construction work, police officer, etc.
  4. Amount of coverage: the larger the mortgage amount, the higher the premium
  5. Policy term: the longer the policy term, the higher the overall cost, although this provides coverage for a more extended period
  6. Type of policy: decreasing term policies, where the payout amount decreases over time as the mortgage balance decreases, are usually cheaper than level term policies, where the payout amount remains the same throughout the term
  7. Type of coverage: the type of coverage you select - whether it covers death as well as accidents, sickness and unemployment, or a mix of these - affects the cost. Policies covering both illness/injury and unemployment are more expensive
    • Benefit period: policies such as critical illness cover or income protection that pay benefits for a longer duration (e.g. up to 24 months) are more expensive. Policies with shorter benefit periods (e.g. 12 months) tend to be cheaper
    • Waiting period: the waiting period when it comes to critical illness cover and income protection is the time between when you become unable to work and when the insurance payments begin. Policies with shorter waiting periods (e.g. 30 days) have higher premiums. Longer waiting periods (e.g. 60 or 90 days) result in lower premiums

How Do Mortgage Protection Payments Work?

  • Premiums: mortgage protection insurance premiums are usually paid per month, although some insurers offer the option to pay annually. The premium remains fixed throughout the term of the policy, providing predictable costs for the duration of your coverage
  • Payout: for mortgage life insurance protection the insurer pays out a lump sum to cover the remaining balance of your mortgage to your beneficiaries. For other types of mortgage protection such as critical illness cover and income protection, the beneficiary will often receive a monthly amount for duration of the benefit period

What Are Cheap Mortgage Protection Options and What Can Cost More?

Cheaper Mortgage Protection Insurance Options

  • Decreasing term insurance: since the payout decreases over time, reflecting the reducing balance of your mortgage, this option is generally more affordable overall and comes with lower premiums
  • Healthy lifestyle: non-smokers and individuals with no significant health issues typically receive lower premiums
  • Shorter term policies: for protection policies such as critical illness and income protection, opting for shorter terms will result in lower premiums compared to policies with longer terms, although they provide less extended coverage

More Expensive Protection Insurance Options

  • Level term insurance: this policy type keeps the payout amount constant throughout the term, generally resulting in higher premiums. It tends to be more suitable for interest-only mortgage where the mortgage balance doesn’t decrease over the term
  • Critical illness and/or income protection coverage: adding coverage for critical illnesses and/or income protection can significantly increase your premiums which is why you should carefully consider the benefit period
  • Older age: the older you are when you take out a policy, the higher the premiums due to increased risk

Example

  • Age: 35 years old
  • Health: Non-smoker, no significant health issues
  • Mortgage Amount: £200,000
  • Term: 25 years
  • Decreasing term insurance: monthly premium: approximately £10 - £20
  • Level term insurance: monthly premium: approximately £20 - £30
  • With critical illness coverage: monthly premium: approximately £50 - £60

The cost of mortgage protection insurance in the UK depends on various factors, including your age, health and the type of policy you choose. By understanding these factors and comparing different options, you can find a policy that fits your needs and budget.

How to Reduce the Mortgage Protection Insurance Costs

1. Shop Around and Compare Policies

Not all mortgage protection insurance policies are created equal. Different insurers offer varying levels of coverage and pricing. By shopping around and comparing multiple quotes, you can find the best deal that fits your budget and needs.

  • Use comparison websites: online tools can help you quickly compare policies from different providers
  • Consult a broker: insurance brokers such as John Charcol can provide tailored expert advice and access to exclusive deals

2. Consider a Decreasing Term Policy

Decreasing term mortgage protection insurance is designed to align with your mortgage balance, which typically decreases over time. This type of policy can be cheaper than level term insurance when you have a repayment mortgage.

  • Decreasing balance: as your mortgage decreases, so does the payout
  • Cost-efficiency: lower coverage amounts over time can reduce premiums

3. Improve Your Health and Lifestyle

Insurers consider your health and lifestyle when determining your premiums. Taking steps to improve your health can lead to lower insurance costs.

  • Quit smoking: smokers often pay higher premiums. Quitting smoking can significantly reduce your costs
  • Maintain a healthy weight: being in a healthy weight range can also lower your premiums
  • Regular exercise: a healthy lifestyle can improve your overall risk profile

4. Combine Insurance Policies

Bundling your mortgage protection insurance with other types of insurance, such as life insurance or critical illness insurance, can sometimes result in discounts.

  • Package deals: many insurers offer multi-policy discounts
  • Simplified management: managing multiple policies under one provider can be more convenient

5. Opt for a Longer Waiting Period if You Require Critical Illness Cover or Income Protection

The waiting period is the time you must wait after becoming unable to work before your insurance payments begin. Choosing a longer waiting period can significantly reduce your premiums.

  • Standard waiting periods: typically range from 30 - 90 days
  • Cost savings: longer waiting periods generally mean lower premiums

6. Select a Shorter Benefit Period if You Require Critical Illness Cover or Income Protection

The benefit period is how long the insurance will pay out once you make a claim. Opting for a shorter benefit period can lower your monthly premiums.

  • Common benefit periods: usually range from 12 - 24 months
  • Assess your needs: consider how long you can manage financially before selecting a shorter benefit period

7. Review and Adjust Coverage Regularly

Your financial situation and needs may change over time. Regularly reviewing your mortgage protection insurance can help ensure you have the right amount of coverage without overpaying.

  • Annual reviews: check your coverage annually to see if adjustments can be made
  • Life changes: adjust your policy if your mortgage balance decreases or if you switch to a more secure job

8. Pay Annually Instead of Monthly

Some insurers offer discounts if you pay your premiums annually instead of monthly. If you can afford to make a lump-sum payment, this option can save you money over the year.

  • Annual payments: check with your insurer for discounts on annual payments
  • Budgeting: plan your budget to accommodate the annual premium

Get an Accurate Mortgage Protection Insurance Quote

To get a precise estimate tailored to your specific situation, it’s best to consult with a life insurance advisor or broker. They can help you compare policies from different insurers and find the most cost-effective option that meets your needs.

Contact John Charcol Today

For personalised advice and to find out how much mortgage payment insurance would cost for your specific circumstances, contact John Charcol on 0333 363 6507. Our team is ready to assist you in securing the financial protection you need.

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