You’ve done the responsible thing and taken out mortgage protection insurance to cover your new home. You assume you’re all set, right? The hard truth is that you might not be.
Many standard protection plans, especially those you might get from a bank, can come with critical gaps. They are often designed to protect the lender instead of you and your family. This guide will expose the 4 most common gaps we see every day. However, this does not mean everyone needs to fill all four. The goal is to help you spot the gaps that are relevant to your personal situation and make informed choices.
Gap 1: Your Plan Covers Death, But What About Sickness?
This is the single biggest gap we see. Most basic mortgage protection insurance is simply a life cover policy. It only pays off the mortgage if you die. Now, what if you’re diagnosed with a serious illness and can’t work for a year? Your policy pays nothing meaning the mortgage payment is still due every single month.
From our experience, this is where a plan that covers you while you’re living is vital.
This cover is split into two main types:
- Policy to Replace Your Monthly Income- This acts like your own personal sick pay. If any illness or injury stops you from working, it pays out a regular, tax free sum to cover your mortgage and bills while you recover.
- Policy That Pays a One Off Lump Sum- This is designed to give you a single cash payment if you are diagnosed with a specific serious illness from a defined list, helping you pay for medical costs or clear a debt. There is also a policy for specific, serious conditions.
This gap is critical because the risk of long term illness is far more common than most people realise. According to recent ONS data, the number of people out of the workforce due to long term sickness has reached a record high of over 2.8 million. A mortgage protection insurance plan that only covers death ignores this huge, real world risk and is only doing half the job.
Gap 2: You Have Illness Cover, But Is It the Right Kind?
This is a subtle gap that catches so many people out. You might feel safe because you have critical illness cover which is a great start.
However, what if your illness isn’t on the policy’s specific list? What if you are signed off for six months with severe back pain or debilitating stress? Your critical illness policy almost certainly won’t pay out. This is the exact problem income protection is designed to solve, which is why we see income protection as the foundation of most working adult’s plan. It covers any medical reason that stops you from doing your job (after a waiting period) instead of a list of 50 specific conditions. A structured mortgage protection insurance plan should account for this.
Gap 3: Your Mortgage Protection Insurance Plan Clears the Debt, But Leaves No Income?
Let’s think about how a basic life cover policy works.
The worst happens and your plan pays off the £200,000 mortgage. A huge weight is lifted from your family’s shoulders. But this is where a new problem can begin.
Your mortgage is gone but so is your salary. How does your family pay for the council tax, the energy bills, the food shop and the school costs next month, and every month after that?
This is a gap that an income policy is built to fill. It’s designed to replace your lost salary for a set period, paying your family a tax free monthly income so their lifestyle doesn’t have to face a sudden shock. It’s about giving your loved ones breathing room when they need it most.
Gap 4: Is Your Plan just a General Add on?
This final gap is the one that ties all the others together. You have a mortgage protection insurance policy but was it truly designed for you?
For example, a 25 year old single first time buyer has completely different needs from a 45 year old couple with three children. A bank or lender might sell you a simple one size fits all policy just to get the mortgage approved. This just ticks a box without checking if it truly fits your life.
This is where talking to a mortgage protection insurance expert is so important. A good protection adviser doesn’t just sell one general policy. Instead, they look at all four potential gaps and help you build a complete mortgage protection insurance plan that fits your specific life, your job and your budget. The MoneyHelper service from the government also provides a great, impartial starting point for understanding your mortgage affordability.
Build a Plan Supported by Aura Mortgages With No Gaps
As you can see, a basic mortgage protection insurance plan can often leave you dangerously exposed.
Your personal mortgage protection insurance plan might only need to fill one or two of these gaps. Maybe your main priority is replacing your monthly income if you are ill or perhaps you are a parent who just wants to know the mortgage will be cleared. The important thing is that the choice is deliberate and informed.
At Aura Mortgages, we believe in making protection clear and accessible. We don’t just find you a mortgage; we help you build the safety net that protects it. We can help you understand the differences between life cover, critical illness cover and income protection, building a plan that fits you.
If you’ve read this and are now wondering about your own cover, or if you’re just starting your journey, please get in touch. We can have a clear, friendly, no-obligation chat to help you build the peace of mind that you and your family deserve.
Mortgage Protection Insurance Frequently Asked Questions
Q. Is mortgage protection insurance a legal requirement?
A. No, protection policies like life cover or income protection are not a legal requirement. Although, many lenders will strongly recommend that you also take out a life cover policy. The only insurance your lender normally requires you to have is buildings insurance as this protects their investment in the physical property. Unfortunately, the problem discussed in the blog shows that the strongly recommended policy from lenders or other brokers is often just a general plan, which may miss out on protection that personally benefits you.
Q. I have sick pay from my employer. Isn’t that enough?
A. This is great protection but it’s vital to check the details. Many people are surprised to learn their full covered sick pay only lasts for a few weeks or months. After that, you could be moved to statutory sick pay (SSP) which is very low. An employer’s policy also doesn’t follow you if you change jobs. A personal mortgage protection insurance policy is yours, regardless of who you work for and is designed to last for years if needed.
Q. I’m young and healthy. Can’t I just wait and get this later?
A. This is one of the most common and costly mistakes. Mortgage protection insurance is priced based on risk. The best time to get it is when you are young and healthy. This is when the monthly premiums are at their absolute cheapest and are fixed for life if you choose a guaranteed premium policy. If you wait until you are older or have had a health issue then the cost probably will be significantly higher and new conditions may be permanently excluded from your policy.