Buying a home and securing a mortgage will likely be the most exciting, but biggest financial commitment of your life. Taking out a mortgage means you’ll buy your home over time through a number of agreed repayments. These are based on the contract with your lender and need to be paid on time throughout the life of your mortgage. It is important to plan for situations that may affect your ability to make those repayments as normal, and to protect your home and the valuables inside.

Here we break down the different types of mortgage insurance available, so you can feel confident at every step of your home-buying journey.


Buildings and contents insurance

Almost all mortgage lenders will require you to take out buildings insurance. Buildings insurance protects you from the cost of repairing or even rebuilding your home if it’s damaged or destroyed. If you’re buying a leasehold property, however, buildings insurance may be included in your service charge. A helpful way to remember the difference between buildings and contents insurance is that buildings insurance covers the physical structure of your home (the walls, roof and sometimes fixtures and fittings), while contents insurance covers what’s inside (furniture and other personal possessions). Contents insurance isn’t a must-have, but it can save you the cost of replacing more expensive personal items in the event of a fire or break-in.


Mortgage protection insurance

Mortgage protection insurance refers to the different types of insurance policies that you can tie to your mortgage repayments. These policies can protect you, your family and your home, and help you to continue paying your mortgage if you’re not receiving a secure income, for example if you become unemployed, are too ill to work, or die.


Types of mortgage protection insurance

There are two main types of mortgage protection insurance.

Life insurance – If you die before you’ve made all of your mortgage repayments, life insurance could pay out a tax-free lump sum to someone you nominate, such as a family member or friend, so that they can pay off the rest of your mortgage. This type of insurance is useful if you have a partner, children or any other dependants, or if you wish to leave your property to someone of your choosing without leaving them in debt. There are two main types of life insurance:

  • Level term – The size of the payout stays “level” for a fixed period of time (the term), which is agreed when you take out the insurance policy. If you die after the term ends, your provider won’t pay out. This type of insurance is normally taken out by homeowners with interest-only mortgages.
  • Decreasing term – The size of the payout decreases throughout the term of the policy as you pay off more of your mortgage over time. This type of insurance is normally taken out by homeowners with repayment mortgages.

Critical illness cover – If you become critically ill and can’t work, critical illness cover will pay out a tax-free lump sum. You can use the payout however you wish, for example, to repay all or most of your mortgage, to fund private medical treatment, or to cover your everyday expenses. Remember to check and compare the terms and conditions carefully before taking out a policy, because the definition of critical illness can vary depending on the provider.


What else to consider

Protecting your income
When planning one of the biggest and most exciting purchases of your life, it’s important to plan for what might happen to your income, for example, if you were unable to work due to illness or injury. Income protection can help provide a regular monthly benefit to cover part of your income if you can’t work, with the actual amount based on your salary. In the same way as the critical illness policies mentioned above, you can use the monthly benefit however you wish. For example, you can use it to maintain your lifestyle, or to help towards your mortgage repayments should you choose.

Having a will
While it’s not technically an insurance policy, having a will goes hand in hand with insurance, as it allows you to plan for what you want to happen to your home after you die. If you don’t leave a will, the law decides how your assets, including your home, are allocated – and this may not be in line with your wishes.


Where to buy insurance

A mortgage broker can help you work out your insurance needs when you apply for a mortgage.

The only insurance that mortgage lenders require you to have is buildings insurance, so it’s up to you whether you take out any additional insurance policies. However, it’s worth considering all the options, so you can feel confident at every step of your journey and have peace of mind knowing that you, your loved ones and your home will always be protected.


Your home may be repossessed if you do not keep up repayments on your mortgage.