What "mortgage protection" really means
It's not one product but a combination that protects your ability to keep your home: life cover to clear the mortgage if you die, critical illness cover for serious diagnosis, and income protection if you can't work. The best setup covers the risks that matter most to your household — not just the one the lender mentions.
1. Decreasing term life insurance
Cover that reduces in line with a repayment mortgage, clearing the balance if you die. Best, and cheapest, for protecting a repayment mortgage. The foundation of most mortgage protection.
2. Level term life insurance
A fixed sum throughout the term — suits interest-only mortgages (where the balance doesn't reduce) or if you want extra beyond the mortgage for your family. Best for interest-only borrowers or those wanting a buffer.
3. Critical illness cover
Pays a lump sum on serious diagnosis, which can clear or reduce the mortgage so illness doesn't cost you your home. Best added to life cover — serious illness is more likely than death during your mortgage term.
4. Income protection
Replaces income if illness or injury stops you working, helping you keep up monthly payments. Best for protecting against the most common threat to payments — being unable to work — especially for the self-employed.
5. Joint vs single policies
Couples can take a joint policy (cheaper, pays once) or two single policies (pay out twice, more flexible). Best for most couples: two single policies for the extra protection.
Building the right protection
- Repayment mortgage: decreasing term life cover
- Interest-only or extra buffer: level term
- Serious illness: add critical illness cover
- Keeping up payments: income protection
How to find the best mortgage protection
A protection specialist can assemble the right mix for your mortgage type, household and budget at the best whole-of-market price — and it's separate from any cover your lender tries to sell you. Find a protection specialist through Nesto — free, no obligation.
Frequently asked questions
Do I have to buy mortgage protection from my lender?
No — you can buy life and protection cover from any provider, usually cheaper and more flexible than the lender's offering.
Is mortgage protection a legal requirement?
Life cover isn't legally required, though lenders may strongly recommend it. Buildings insurance is typically required as a condition of the mortgage.
Decreasing or level term for my mortgage?
Decreasing term suits a repayment mortgage (balance falls); level term suits interest-only or if you want extra cover for your family.
Should I add critical illness or income protection?
Both are worth strong consideration — illness and inability to work threaten your payments more often than death during the term.
Joint or single policies for a couple?
Two single policies usually offer better value and flexibility, paying out twice rather than once.