Your Mortgage Is Protected From Rate Rises – But Is It Protected From Life?
When clients come to us about a mortgage, the conversation is almost always about rates: fixed versus tracker, two-year versus five-year, which lender has the best deal this month. All important questions. But there’s a bigger one that often gets missed entirely: what happens to that mortgage if you couldn’t work tomorrow, or if you weren’t around to pay it at all?
It’s not the most comfortable topic to raise, and I understand why it often gets skipped over. But arranging a mortgage without thinking about how you’d protect it is a bit like fitting a new kitchen and forgetting to check the roof. The bigger commitment deserves the bigger safety net.
The Gap Is Bigger Than Most People Think
The numbers here are genuinely striking. According to the latest Profile of an Income Protection Customer report from the Income Protection Task Force and Iress, the vast majority of income protection needs in the UK go unmet, and roughly three-quarters of people have no income protection cover in place at all. Encouragingly, the market has been growing, with income protection sales climbing at a double-digit rate over the past year as more people wake up to the risk.
That gap matters because most people significantly overestimate how well they’d be looked after if illness or injury stopped them working. Employer sick pay is often generous at first, but it typically tapers off within a few months, and statutory sick pay alone comes to a little over £100 a week – nowhere near enough to cover a mortgage, let alone everything else.
Different Products, Different Jobs
Life insurance, income protection and critical illness cover often get lumped together, but they solve different problems, and most homeowners benefit from thinking through all three.
Life insurance is the simplest of the three: if you die during the policy term, it pays out a lump sum, which can be used to clear the mortgage outright so your family isn’t left with the debt. For most residential mortgages, a level or decreasing term policy matched to your mortgage term and balance is the standard, cost-effective way to cover this.
Income protection covers a very different scenario – one that’s statistically far more likely than death during the mortgage term. If illness or injury stops you working, it pays out a regular, tax-free income, typically between 50% and 70% of your salary, for as long as you’re unable to work. Rather than clearing the mortgage, it keeps the monthly payments – and your other bills – covered while you recover.
Put simply: life insurance protects your family if the worst happens. Income protection protects your income, and therefore your mortgage, if you’re simply unable to earn for a period.
Where Critical Illness Cover Fits In
There’s a third piece worth understanding: critical illness cover. Rather than replacing lost income like income protection, or paying out on death like life insurance, it pays a single tax-free lump sum on diagnosis of one of a defined list of serious conditions – typically things like cancer, heart attack, or stroke, along with a range of other specified illnesses depending on the policy.
The appeal is speed and flexibility. A diagnosis often brings sudden costs that have nothing to do with your monthly mortgage payment – private treatment, adapting your home, taking extended time off, or simply having breathing room while you and your family adjust. A lump sum can be used to clear some or all of the mortgage, cover those costs, or both, whereas income protection is designed to replace an ongoing salary rather than hand you a one-off sum.
It’s worth being clear-eyed about the trade-offs, too. Critical illness cover only pays out for the specific conditions listed in the policy, so it won’t help with every illness or injury that stops you working, and premiums are generally higher than a comparable income protection policy for that reason. Many clients choose to combine it with life insurance as a single “life and critical illness” policy, while others prefer income protection as the broader, ongoing safety net. Some choose both, layering income protection for the day-to-day mortgage payments with a smaller critical illness lump sum for the immediate costs a serious diagnosis brings.
There’s no single right answer – it depends on your budget, your family circumstances, and how much of the risk you want to cover with a lump sum versus an ongoing income.
Why This Belongs in Every Mortgage Conversation
A mortgage is usually the largest financial commitment most people will ever take on, often stretched over 25 to 35 years. Over that kind of timeframe, the odds of a serious illness, injury, or period unable to work are far from negligible – certainly higher than most people assume when they’re focused on securing their dream home.
For self-employed clients and contractors in particular, this conversation matters even more. Without an employer’s sick pay scheme to fall back on, a period of illness can mean no income at all from day one, at exactly the moment mortgage payments are still due.
There’s also a practical, lending-side reason to raise this early: some lenders view evidence of appropriate protection cover favourably as part of a holistic view of a borrower’s financial resilience, particularly for higher loan-to-value or interest-only cases.
What I’d Suggest
Every client’s circumstances are different, so there’s no one-size-fits-all answer here. But as a general starting point when you’re taking out or renewing a mortgage, it’s worth asking yourself three questions:
1. If I died tomorrow, would my family be able to stay in this home?
2. If I couldn’t work for 6-12 months due to illness or injury, could I still make the mortgage payments?
3. Does my employer’s sick pay actually last long enough to matter, or does it taper off quickly?
If any of those answers make you uncomfortable, that’s usually a sign it’s worth having a proper conversation about cover – ideally at the same time as your mortgage, rather than as an afterthought.
Protection policies can often be arranged alongside your mortgage application with minimal extra effort, and cover levels can be tailored to your budget rather than an all-or-nothing decision. That’s why at Hirschle Hughes we have a dedicated protection team on hand to advise on these products – so when you come to us for your mortgage, you can get the full picture in one place. If you’d like to talk through what suitable cover might look like for your situation, get in touch and we can go through the options together.
Feel free to reach out to our advisers at Info@Hirschlehughes.com
