Which 'mortgage protection' are you being offered?

The name covers two completely different products. One pays a lump sum if you die, and the other pays your mortgage for a while if you can't work.

What the two products actually are

'Mortgage protection' is the name used for two different products, and the paperwork rarely spells out which one you've been offered.

Decreasing-term life cover

This pays a lump sum to whoever is named on the policy if you die during the term. The amount it would pay falls over time, broadly in line with the amount you still owe on the mortgage. It does not pay out for illness, injury or unemployment. It pays once, not on an ongoing basis.

Mortgage payment protection insurance (MPPI)

This pays a monthly amount towards your mortgage if you cannot work, usually because of accident, sickness or unemployment. It does not pay a lump sum, and it does not pay anything if you die. It pays for a limited period per claim, set out in the policy document.

The two are easy to confuse because brokers and lenders often use 'mortgage protection' as a loose label for either one. The only reliable way to tell them apart is to look at what the document says it pays, and when.

Three questions, answered from your own paperwork

The checks that tell the two products apart

Your policy schedule or key facts document holds the answer to three plain questions. Work through them in order, against the paper in front of you, and the product becomes clear.

  1. Does it pay a lump sum or a monthly amount?

    Look at how the benefit is described on your schedule, as either a one-off sum or an amount paid month by month.

    The document may call this the sum assured or the monthly benefit.

    A lump sum

    This points to decreasing-term life cover, paid out once as a single sum.

    A monthly amount

    This points to mortgage payment protection insurance, paid month by month for a set period.

  2. Does it pay on death or on being unable to work?

    Check what triggers the payment in the policy wording. One product responds to death; the other responds to illness, an accident or redundancy.

    On death

    This points to decreasing-term life cover.

    On being unable to work

    This points to mortgage payment protection insurance, sometimes shown on the document as accident, sickness and unemployment (ASU) cover.

  3. Does the amount fall as the mortgage is repaid?

    Compare the benefit amount shown for different years against the mortgage balance over the same years.

    The amount falls over time

    This tracks a shrinking mortgage balance, which is how decreasing-term life cover is built to work.

    The amount stays level, or is limited by months

    This is typical of mortgage payment protection insurance, which pays a set monthly amount until a time limit is reached.

The result follows from the answers you give it, so it is only as good as the detail on the document in front of you, and it can point you the wrong way if a question is answered from memory.

Once you know which one you have

Once you have worked out which product sits in front of you, the two paths are quite different.

If it turned out to be decreasing-term life cover

This pays a lump sum to whoever you have named if you die while the policy is in force, and the amount it would pay falls over time as the mortgage balance falls. The checks that matter for this product, such as how the sum assured is set and what happens to cover if you move home, are not the same ones that matter for payment protection. For that reason, readers with this product are better served by LifeInsuranceQuotation.co.uk, which deals with that cover specifically.

If it turned out to be payment protection

This pays towards your mortgage for a limited period if you cannot work because of accident, sickness or unemployment. Before you decide whether to take it, keep it, or query it, work through the payment protection eligibility checklist. It takes you through the questions insurers actually use to decide whether a claim is paid, including the ones that are easy to miss on a first read of the policy document.