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Mortgage protection insurance

Many lenders offer mortgage payment protection insurance when you apply for a loan. This is designed to pay your monthly instalments while you're unable to work either because you are sick or have had an accident or if you have been made redundant.

Don't simply take the policy offered by your bank or building society as you may find it's cheaper to go to an independent provider. The terms of the policy can vary so look beyond the price to check it will be sufficient if you need to claim.

The details you need to look out for are:

  • How long do you have to wait before you can make a claim? Often there's a waiting period of 3 - 6 months after you've stopped working before you'll receive payments. This clause will make the insurance cheaper, but you need to consider whether you could you cope without any income for this long and whether you're covered by your employment contract for a number of months.

  • Other policies will have a 'back to day one' clause, meaning that payments will kick in immediately once your claim has been processed.

  • Also check how long payments will continue – the majority stop after 12 months while some run for 24 months. In the current climate, finding another job after being made redundant may take longer than you think.

  • Check whether it includes redundancy. The self-employed and contract workers are unlikely to be able to claim for this. If your employer made it known some staff would be made redundant before you took out the policy, your claim will be rejected.

Income protection

Another option is to take out income protection which covers you for more than your mortgage repayments. The maximum amount of cover you can buy is typically around half your income. Workers should check whether their employer offers this sort of cover as one of their staff benefits before buying it.

Payments are not taxed and you can choose whether to be insured for a short or long-term. If you go for a long-term policy, you will receive a monthly income until you can return to work or retire. Most policies are designed to cover you if you can't work because you are sick or have been injured, but you can opt to add on redundancy cover as well.

Depending on the sick pay your employer offers, you can defer the start date for when claims will be paid out. For instance, if your firm will pay you your salary for the first three months, you could choose one that will start paying after you've been signed off for three months. The longer the deferment period is, the cheaper the premiums.

Payment stops once you return to work. Do check whether you're covered until you're fit enough to do your own job rather than any work which is far broader. Income protection is suitable for the self-employed.

 
 
Lender Initial Rate Duration Standard Rate Overall Cost For Comparison Max Loan To Value Fee
2.59% 2 years 5.69% 5.4% APR 75% £999
2.69% 2 years 4.99% 4.9% APR 75% £495
2.94% 2 Years 5.69% 5.4% APR 75% £199
2.99% 2 years 4.99% 4.9% APR 85% £495
2.99% 3 years 4.99% 4.6% APR 70% £499
3.0% 2 years 5.69% 5.5% APR 80% £999
3.19% 5 Years 4.79% 4.2% APR 80% £995
3.35% To Jul 2014 4.95% 4.6% APR 75% £999
3.5% 2 years 5.49% 5.1% APR 75% £595
3.84% 2 years 3.94% 4% APR 90% £499

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