What is credit insurance
Credit insurance covers policies linked to borrowing. Some protect the lender’s security; others make your repayments or clear the debt if you die, fall ill or lose your job.
Main types
Buildings insurance
Required by every mortgage lender from exchange of contracts. You can choose any insurer that meets the lender’s requirements.
Life insurance
Not compulsory, but advisable if anyone depends on you. Decreasing term cover falls with a repayment mortgage balance and is usually cheaper than level term.
Critical illness cover
Pays a lump sum on diagnosis of specified serious illnesses.
Income protection
Pays a share of your income if you can’t work due to illness or injury, often until you return to work or retire. Usually broader than payment protection.
Mortgage payment protection (MPPI / ASU)
Covers mortgage payments for a limited period (often 12–24 months) after accident, sickness or unemployment.
GAP insurance
For car finance: covers the gap between the insurer’s payout and the finance settlement or the car’s original price if it is written off.
Lessons from PPI
Payment protection insurance (PPI) was widely mis-sold with loans and cards — often to people who couldn’t claim on it — leading to one of the largest compensation programmes in UK history. The deadline for PPI complaints has passed, but the lessons remain: protection must be optional, suitable and clearly explained.
Your rights
- Optional means optional. Apart from buildings insurance, a lender can’t make protection a condition of the loan.
- Cooling-off. You can cancel life and protection policies within 30 days and most general insurance within 14 days for a refund.
- Complaints. If you are unhappy with how a policy was sold, complain to the firm and then to the Financial Ombudsman Service.
Compare policies from independent insurers or a protection adviser — they are often cheaper and broader than cover sold with the loan.
How terms differ between providers
| Term | How it can differ |
|---|---|
| Cover | Death only, critical illness, accident, sickness and/or unemployment. |
| Deferral and claim period | How long before payments start and how long they last. |
| Exclusions | Pre-existing conditions, self-employment, contract work. |
| Premium | Age, health, smoking status, amount and term. |
| Payment | Monthly premiums or a single premium added to the loan. |
Checklist
- Check what you already have: employer sick pay, death-in-service benefit, existing policies.
- Read the exclusions and deferral periods.
- Prefer monthly premiums over single premiums added to a loan.
- Write life policies in trust so payouts reach your family quickly.
This material is for general information only, describes UK rules in force on the publication date, and is not financial, legal or tax advice. Rules, schemes and lenders’ terms change — always check your agreement, your lender’s current terms and official sources such as the FCA, MoneyHelper and GOV.UK.