Insurance: Protecting Your Family and Your Mortgage

Taking out a mortgage is one of the biggest financial commitments you'll ever make — so it's worth thinking about how you'd keep up with it, or how your family would cope, if the unexpected happened. There are several different types of protection insurance available, each covering a different part of your life, so that you and your family are financially protected should the worst happen. Below, our Oxford-based mortgage and protection advisers explain the three main types of cover and who they tend to suit.

Life Insurance

Life insurance, also known as life cover, is a type of policy designed to give you peace of mind about what happens after you die. It pays out a cash sum to your family or loved ones when you pass away. This money can be used to pay off a mortgage or other debts, or to provide a valuable financial safety net for your family. It minimises the financial impact your death could cause and is one of the most essential forms of protection insurance, recommended to almost everyone with financial dependants.

We recommend life insurance if you have someone who would be financially impacted by your death. For example, if you have a family or are planning to start one, life insurance can give them the means to carry on despite the loss of your income. It's also worth considering while you're young, as premiums are typically lower the earlier you take cover out — something we discuss with clients arranging a new mortgage in Oxford for the first time.

If you're employed, you may already have life insurance as part of your workplace benefits package. It's worth checking with your employer to confirm exactly what your family would receive if you passed away. If the payout wouldn't be enough to cover your mortgage and outgoings, or the cover would end if you left the job, it's often sensible to arrange a separate policy alongside it.

Critical Illness Cover

Critical illness cover pays out a lump sum, or in some cases an income, if you're diagnosed with a specified serious illness — such as a heart attack, stroke, certain types of cancer, or a condition like multiple sclerosis. The exact conditions covered, and any exclusions, will be set out in the policy's terms and conditions, so it's important to check these carefully. Many policies will also pay out if you're permanently disabled following an injury or illness.

Critical illness cover is worth considering if you'd struggle financially were you unable to work. If your household relies on your income and has no other significant source of money coming in, this cover can make sure you have funds available if you're too unwell to work — whether that's to help pay off your mortgage sooner, cover day-to-day living costs, or pay for care.

Income Protection

Income protection insurance pays a percentage of your take-home pay if you're unable to work due to illness or disability. It covers most illnesses that would prevent you from working, though — unlike redundancy cover — it doesn't pay out if you lose your job through unemployment.

Income protection is worth considering if you couldn't rely on savings or employee sick pay to see you through a long-term illness. If your outgoings would quickly become unaffordable without your usual income — including your mortgage payments — income protection can help you stay financially afloat until you're able to return to work or find another source of income. It's a policy we often discuss alongside self-employed mortgage applications, where there's no employer sick pay to fall back on.

Payment Protection Insurance (PPI) is a related, optional product, and there are other providers of PPI and similar products designed to protect you against loss of income. We can talk you through how these compare to income protection as part of a wider review.

Do I Need Protection Insurance With My Mortgage?

There's no single right answer — it depends on your circumstances, your dependants, and what cover you already have. Whether you're a first-time buyer, remortgaging, arranging a buy-to-let, or moving home, our advisers can review your protection needs alongside your mortgage application, so everything's arranged in one place.

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