What Insurance Do I Need When Taking Out a Mortgage?
Buying a home is one of the biggest financial commitments you will ever make. Alongside the excitement of getting the keys, there is also the responsibility of protecting both the property and the people who live in it. That is where insurance comes in.
But with so many different types of cover available, it can be confusing to know what you actually need when you take out a mortgage. Some policies are mandatory, others are optional, and all of them play a role in helping you feel secure. This guide explains the key types of insurance linked to mortgages, what they cover, and why they might be worth considering.
Buildings insurance – usually required by your lender
When you buy a property, most mortgage lenders will insist on buildings insurance as a condition of your loan. This policy covers the physical structure of your home, such as the walls, roof and permanent fixtures, against risks like fire, flood, storm or subsidence.
Without it, you could face repair or rebuilding costs on your own, which could run into tens of thousands of pounds. Imagine your roof being damaged in a storm just weeks after moving in – buildings insurance is what makes sure you are not left footing the bill.
If you are just starting your journey to homeownership, you may also find our first-time buyer’s guide to mortgages useful for understanding exactly what lenders expect.
Contents insurance – protecting what makes your house a home
While your lender requires buildings insurance, contents insurance is up to you. It covers the things inside your home, from furniture and clothing to jewellery, laptops and TVs. If your belongings are stolen or damaged by fire, flood or accidental mishaps, this policy can help replace them.
Think about how much it would cost to replace everything in your home in one go. For many people, the value of their possessions runs into tens of thousands of pounds. Contents insurance gives you peace of mind that you can recover from the unexpected without wiping out your savings.
Life insurance – security for your family
Your mortgage may be the biggest financial commitment of your lifetime. If you were to pass away before it is repaid, life insurance can provide a lump sum to cover the outstanding mortgage. This ensures your loved ones can stay in the family home without worrying about repayments.
This type of protection is not legally required, but for many families it is one of the most important policies to have in place. It can also form part of a wider plan to protect your financial wellbeing. If you are considering how different types of protection fit together, you may find our quick guide to insurance and protection helpful.
Income protection – keeping up with mortgage payments
If illness or injury prevents you from working, your income could stop overnight, but your mortgage payments will not. Income protection insurance is designed to cover this gap. It provides you with a regular income if you cannot work for a longer period, helping you keep up with essential outgoings like mortgage repayments, bills and groceries.
This type of cover is particularly useful if you are self-employed or your employer offers limited sick pay. It means you can focus on recovery without the added stress of falling behind on your mortgage.
Critical illness cover – financial support when health takes priority
Critical illness cover pays out a lump sum if you are diagnosed with a serious condition such as cancer, heart attack or stroke. The payout can be used however you need it most, from reducing your mortgage balance to covering treatment costs or simply giving you breathing space to focus on recovery.
Unlike income protection, which pays a regular monthly income, critical illness cover provides a one-off payment. Some people choose to have both, giving them immediate financial support and longer-term income security.
Mortgage Redundancy Cover – Financial support if you lose your job.
Mortgage redundancy cover, also known as unemployment insurance or mortgage payment protection insurance (MPPI), is a type of short-term income protection insurance designed to help with your mortgage and other bills if you are involuntarily made redundant. It typically provides a tax-free monthly income for a set period, such as 12 months, to cover your expenses while you look for new work.
How it works
Involuntary redundancy: The policy pays out if you are made redundant, not if you leave your job voluntarily.
Monthly payments: It provides a tax-free monthly payment for a pre-agreed period, often up to 12 or 24 months.
Benefit level: This is usually a percentage of your gross monthly income, such as 65% or 70%.
Deferred period: Policies typically have a waiting period (e.g., three months) before payments begin.
Eligibility: Some policies may have restrictions, such as not covering part-time workers, those on fixed-term contracts, or people who have been in their current job for less than six months.
Do you need them all?
The only insurance that is usually compulsory when taking out a mortgage is buildings insurance. The others depend on your circumstances. If you have dependants, limited savings, or are self-employed, life insurance, income protection and critical illness cover may all be worth serious consideration. If you live alone with a strong savings buffer, you might choose a different combination.
What matters most is that you understand your options. Insurance is not just about ticking boxes for a mortgage lender – it is about creating peace of mind and financial stability for you and your family.
Key takeaways
Buildings insurance is usually mandatory when you take out a mortgage.
Contents insurance is optional but protects your belongings.
Life insurance ensures your loved ones can keep the home if you pass away.
Income protection covers monthly repayments if illness or injury stops you working.
Redundancy Cover – Provides cover for your mortgage payments if you lose your job due to redundancy.
Critical illness cover provides a lump sum if you are diagnosed with a serious condition.
Protecting your home and mortgage with the right insurance can give you confidence as you take this exciting step. Every situation is different, so think carefully about the right balance of cover for you.