What would happen to your home if something happened to you?

What it is, and the two things it is constantly confused with

Mortgage protection insurance is life insurance arranged around a mortgage. If you die during the term, it pays a benefit intended to clear or substantially reduce the loan so your household can stay in the home.

It is not private mortgage insurance. PMI protects the lender if you default, you pay for it, and it ends once you reach sufficient equity. The beneficiaries are opposite: PMI pays the lender, mortgage protection pays the people you name.

It is not homeowners insurance either. Homeowners covers the building and your liability. Mortgage protection covers the income that pays for the building.

Level or decreasing, and why it matters

A decreasing term policy is designed so the benefit falls roughly in step with the outstanding balance of a repayment mortgage. It is usually the cheaper structure, and the logic is neat.

A level term policy keeps the benefit the same throughout. It costs more, and the surplus above the remaining balance goes to your beneficiaries rather than disappearing - which is often the point, because a household that has just lost an income usually needs more than a cleared mortgage.

Neither is correct in the abstract. The question is whether you are insuring the debt or insuring the household.

How much, and for how long

The default is the mortgage balance over the remaining term, and it is a reasonable starting point rather than an answer.

It is worth asking what else would need paying. Property taxes and insurance continue after a mortgage is cleared. So does everything else a household spends. A policy sized only to the loan can leave a family in a house they can no longer afford to run.

On the term: matching the remaining years of the mortgage is the usual approach, and worth reviewing whenever the mortgage itself changes.

Who owns the policy and who gets paid

This is the detail that separates a policy that works from one that creates a problem, and it is easy to get right at the outset and awkward to change later.

In most arrangements you own the policy and name your beneficiaries - so the money arrives with them, and they decide whether to clear the mortgage or use it differently. An arrangement where the lender is the beneficiary removes that choice.

For couples, whether to hold one joint policy or two single policies is worth deliberate thought rather than defaulting. Two policies generally pay twice; a joint first-death policy pays once and then ends.

Underwriting, and the no-medical-exam question

Mortgage protection is underwritten as life insurance, because that is what it is. Health history, prescription record and lifestyle are generally assessed the same way.

Simplified issue policies that skip the medical exam are widely available and genuinely useful where speed matters or where an exam is a barrier. The trade is usually a higher premium for the same benefit, and sometimes a graded benefit in the early years. Neither is hidden - but it is worth asking which structure you have been quoted.

What happens when the mortgage changes

Refinancing, moving, or taking a second loan are the points at which mortgage protection most often stops matching reality, and nobody is prompted to review it.

A policy you own is generally unaffected by refinancing - it continues regardless of what happens to the loan, which is an argument for owning it yourself. But the amount and term may no longer fit, and a policy sized to a mortgage you have since replaced is a policy sized to nothing in particular.

It is worth a ten-minute review whenever the mortgage changes, and at least once every few years otherwise.

Compare it against a plain term policy

This is the comparison that most often changes someone's mind, and it costs nothing to run.

Take the mortgage protection quote and get a level term life quote for the same benefit over the same number of years. They are the same kind of contract, and the second is frequently cheaper, more flexible, and unaffected by what happens to the loan.

Where mortgage protection wins is usually convenience and accessibility - a simplified application, quicker cover, and sometimes acceptance where standard underwriting would be difficult. Those are real advantages. They are just worth buying deliberately rather than by default.

What to have ready when you apply

Applications stall on missing detail far more often than they are declined, and almost all of it is gatherable in advance.

• The outstanding mortgage balance and the remaining term
• Whether the loan is repayment or interest-only, which decides whether decreasing cover makes sense
• Names and dates of birth for everyone who would be on the policy
• Your GP or physician's details, and the dates of any recent investigations
• A list of current medications with dosages
• Details of any condition under active investigation, because a pending result is the most common reason an application is postponed rather than declined

The review nobody schedules

A mortgage protection policy is sized against a number that falls every month and a term that shortens every year, and almost nobody revisits it.

Review it whenever the mortgage changes - a remortgage, a move, an additional loan, or a change to the repayment structure - and otherwise every few years as a matter of routine. Check that the benefit still reflects what would actually be needed, that the term still matches the loan, and that the beneficiaries are still the right people.

If your health has improved since you bought the policy - you stopped smoking, or a condition has since resolved - then it can be worth going back and re-quoting the cover. Cover bought at a rated premium does not automatically improve when the reason for the rating goes away.

What happens at the end of the term

Term cover ends when the term ends. If the mortgage is paid off on schedule that is exactly right, and nothing needs doing.

Where it goes wrong is when the mortgage outlives the policy - a remortgage that extended the loan, a payment holiday, a switch to interest-only. The policy expires on its original date regardless, and it does so quietly.

Ask at the outset whether the policy is convertible: whether you can exchange it for permanent cover without proving your health again, and by what deadline. It usually costs little or nothing to have, and it is the feature that matters most if your health changes during the term.

Where it sits alongside your other cover

Mortgage protection is one layer, and it is worth mapping what else is already in place before deciding how much of it to buy.

Employer life cover is the most commonly overlooked, and the most commonly overestimated - it is usually a modest multiple of salary and usually ends with the job. Any existing personal life policy counts too, and if it is large enough the mortgage may already be covered by it.

The question is not whether to have a policy specifically labelled mortgage protection. It is whether the total amount of life cover across everything you hold would leave your household able to stay in the home. If it would, a separate policy adds cost rather than protection.

If you are self-employed

Self-employed households are the ones where mortgage protection most often matters and least often exists, because there is no employer policy sitting quietly in the background doing part of the job.

There is usually no group life cover, no employer-paid disability cover, and no sick pay. Everything that would otherwise be absorbed by an employment package has to be bought deliberately or not at all, and the mortgage is generally the largest fixed cost in the picture.

Underwriting is the same as for anyone else - it assesses health, not employment status. What differs is the paperwork around income, where insurers generally want to see a track record rather than a single good year. Tax returns or accounts covering two or three years are the usual request.

For business owners with a partner in the business, it is worth separating two questions that get conflated: cover that keeps your household in its home, and cover that lets the business continue or be bought out. They are different amounts, they may need different owners, and a single policy sized to the mortgage does not answer the second one.

Co-borrowers who are not your spouse

Buying with a sibling, a parent, a friend or a business partner changes the structure, because the person who shares the debt may not be the person you would want to receive the money.

Those are two separate decisions and the policy handles them separately: who is insured, and who is named as beneficiary. Naming a co-borrower as beneficiary means the money goes to clearing the shared debt; naming your own family means it goes to them, and the co-borrower is left with the loan.

Where two people share a mortgage and neither would want to be left holding it alone, the usual arrangement is a policy on each life. Getting the ownership and beneficiary designations right at the outset is far easier than unpicking them later, and it is worth stating plainly what you want the money to do before anyone fills in a form.