Partner Insight: Rethinking mortgage protection: Is covering just the home enough?

It's unsurprising that the recent Protection Viewpoint research from the Association of Mortgage Intermediaries (AMI) found that the ongoing economic outlook is weighing heavily on homeowners^[1].

The reality for most people with a mortgage is that their home is both their biggest asset but also their biggest liability and in recent years, rising living costs and mortgage rate volatility have added to the pressures facing homeowners.

According to the AMI report, over half of mortgage holders are feeling a big emotional impact from the current economic environment when making financial decisions¹.

Given the challenging backdrop, comprehensive mortgage protection is more essential than ever, but concerningly millions of mortgage holders still lack an adequate financial safety-net.

Homeowners are lacking comprehensive cover

Talk to most people about mortgage protection and it is probably life insurance that immediately springs to their mind. Indeed, this is reflected in market data that consistently shows sales of life cover outstripping all other forms of protection.

Earlier in the year, research by the HomeOwners Alliance and LifeSearch found that while 50% of homeowners had life insurance, just 20% had critical illness cover and only 16% had income protection^[2].

The low uptake of income protection among mortgage holders is especially concerning, particularly as Vitality research shows parents with a mortgage could only keep paying for 4.5 months if they lost their income^[3], and 46% of homeowners would struggle to meet mortgage payments within six months following a sudden loss of income due to illness or injury².

Shockingly, over a third of mortgage holders have no protection cover at all!²

Rethinking what we mean by mortgage protection

It's clear that, as an industry, it is time to double down on our efforts to ensure more homeowners are protected. But it's essential that we don't just stop at protecting the mortgage debt and nothing more.

The overemphasis on life cover at the expense of other forms of protection is leading to a situation in which all that's really being protected is the bank's debt liability in the event of the mortgage holder dying.

And we know that when assessing the risks that a client is likely to face during the term of their mortgage, premature death is the least likely to occur. According to Vitality's Life Risk Calculator, a 30-year-old female with a 25-year mortgage has just a 2% risk of death but a 46% risk of being unable to work for one month or more.

The FCA's Consumer Duty makes it clear: advisers must deliver good outcomes and avoid foreseeable harm. That means recommending solutions that meet client needs, offer fair value, and help them achieve their financial objectives. Limiting cover to the mortgage debt repayment alone risks falling short of that standard.

A good outcome isn't just about paying off a loan – it's about ensuring clients can stay in their home, maintain their lifestyle, and recover without financial stress. It's about thinking beyond just the debt and considering the long-term picture.

Considering a more holistic approach to mortgage protection

All this points to need for a more holistic approach to mortgage protection, one that takes account of the client's full range of needs.

On the one hand, this means extending traditional forms of protection to offer more relevant cover for the risks that are likely to arise.

Take Vitality's Serious Illness Cover for example. By covering a broader range of conditions and severities, we can ensure that if the client does fall ill there's a greater likelihood they'll be able to successfully claim, even at a lower severity where there could nonetheless be a financial impact.

In 2024, one in five Serious Illness Cover claims were for conditions not covered by a core critical illness plan, whilst one in seven claims were not covered by a typical enhanced critical illness plan^[4].

Income Protection (IP) is also essential, particularly when we consider that according to CIExpert's Critical Thinking report, only 19% of critical illness claimants used the payout to pay off the mortgage, whilst 22% used it to cover lost income^[5].

IP offers flexibility to cover all household costs, not just the mortgage. While features like Vitality's enhanced recovery benefit also support clients back to work – improving their long-term financial stability.

Providing value outside of making a claim

Of course, for anyone purchasing a home comes the excitement of getting their new property, as well as the natural worries around budgeting and costs – especially for first time buyers.

It's why protection may be discussed but not immediately prioritised by the client. The worst-case-scenario framing can feel quite negative at what is supposed to be a happy time, whilst the intangible nature of traditional protection isn't always an easy sell given people's natural optimism and belief that bad things won't happen to them.

The good news is it doesn't have to be like that. By offering value from day one, alongside comprehensive protection, we can change that narrative.

With Vitality, clients don't just get cover for life's big risks; they get everyday rewards and incentives that - from gym discounts to free coffee and cinema tickets – in return for making healthy choices. In fact, members saved £99m through the Vitality Programme in 2024 alone.⁴

And, by engaging with the Vitality Programme, they can even add up to five extra years to their life*. That means more time to enjoy the home they've worked so hard for, with the people they love – all while knowing their mortgage is protected.

*Based on members who move from 0 to 21+ activity points a week throughout their lifetime, applied to standard UK mortality rates. Vitality study 2024

Mortgage Protection | Advisers | Vitality