You’ve just signed the papers for your dream home.
You’re picturing family dinners in the kitchen, lazy Sundays in the backyard, and the joy of finally calling this space your own.
But then a nagging thought creeps in…what happens if life takes an unexpected turn—an illness, an accident, or worse?
How would your family keep up with the mortgage?
Unfortunately, this is a reality many Australian homeowners face.
Thankfully, there’s mortgage protection insurance!
This guide will answer the question, “What is mortgage protection insurance?” and show you how it can safeguard your finances, even when life throws you a curveball.
Understanding Mortgage Protection Insurance in Australia
Mortgage protection insurance in Australia helps cover your home loan repayments if you cannot due to unforeseen circumstances, such as a serious illness, injury, or even death.
It’s all about protecting your biggest asset—your home— during tough times.
How does mortgage protection insurance work?
You pay regular premiums to keep the policy active, much like with other types of insurance.
If a covered event occurs, such as losing your ability to work due to an injury, the insurance pays a portion or all of your mortgage repayments for a specific period.
Mortgage Protection Insurance vs. Other Types of Insurance
Lenders’ Mortgage Insurance (LMI)
Mortgage protection insurance and lenders’ mortgage insurance (LMI) may sound similar, but they serve very different purposes.
LMI is typically required when your home loan deposit is less than 20% of the property’s value because the lender considers this a higher-risk loan.
While you’re the one paying for LMI—often as a one-off cost or added to your loan—it offers no direct financial benefit to you as the borrower.
Its sole purpose is to reduce the lender’s risk, guaranteeing they recover their money if you default on your loan.
Life Insurance
Life insurance provides a lump sum payment to your beneficiaries if you pass away.
They can use this money for any purpose, not just your mortgage.
Your family may use it to cover living expenses, fund education, or pay off the home loan so they can stay in their home.
Total and Permanent Disability (TPD) Insurance
Total and permanent disability (TPD) insurance pays out a lump sum if you become totally and permanently disabled and are no longer able to work in your current role or, in some cases, in any role.
As with life insurance, while this payout can be used to cover mortgage repayments, it isn’t restricted to your mortgage.
You can use it for any purpose, such as medical bills, daily living expenses, or home modifications required due to your disability.
Income Protection
Income protection insurance replaces 70–90% of your income if you’re unable to work due to illness or injury.
The payouts are not restricted to specific expenses.
However, having a regular income stream through income protection insurance allows you to continue meeting your home loan obligations, avoiding the stress of falling behind or foreclosure.
Benefits of Mortgage Protection Insurance for Homeowners
Why might you choose mortgage protection insurance over life insurance, TPD insurance, or income protection?
Mortgage income protection is a targeted solution for covering your home loan repayments.
This approach is appealing if you want straightforward protection for your property without needing to manage a lump sum or allocate payouts to other expenses.
It’s also often easier to understand and may have lower premiums than more comprehensive policies.
Other benefits include
- Financial security and peace of mind during challenging times.
- Protection for your family by ensuring they can stay in the family home if you’re unable to work or pass away.
- Safeguarding your business from being jeopardised due to personal financial difficulties.
Common Mistakes to Avoid
Not Having Enough Coverage
Not having enough coverage means the insurance policy payout won’t cover the remaining balance of your mortgage or isn’t sufficient to meet repayments for the agreed-upon period.
If the insurance only covers a portion of the repayments, the remaining amount will still need to be paid, adding stress instead of providing the peace of mind you expected.
Consider the total amount of your mortgage, your repayment schedule, and how long you might need financial support in the event of illness, injury, or death to choose a policy with adequate coverage.
Overlooking Exclusions
Another common mistake with mortgage protection insurance is failing to review the policy exclusions.
Exclusions are specific circumstances or conditions that the insurance policy won’t cover.
For example, some policies might exclude coverage for pre-existing medical conditions, specific injuries, or unemployment caused by voluntary resignation.
If you assume you’re fully protected without understanding these exclusions, you could find yourself without the financial support you were counting on.
Take the time to read the fine print of your policy carefully and ask your insurer about anything that’s unclear.
Considering whether the exclusions could impact your ability to claim will help you select a policy that meets your needs.
Not Reviewing Your Policy Regularly
Failing to review your policy regularly can be a costly mistake.
Life doesn’t stay the same—your financial situation, mortgage balance, or personal circumstances can change.
If you’ve paid off a significant portion of your mortgage or refinanced, your existing policy might cover more than necessary, meaning you’re spending money on unnecessary premiums.
On the other hand, if your mortgage balance has increased or your circumstances have changed, you could be left with insufficient coverage.
To avoid either situation, make it a habit to review and update your policy periodically, especially after major life events like refinancing, changing jobs, or taking on additional financial responsibilities.
Pros and Cons of Mortgage Protection Insurance
| Pros | Cons |
| Targeted mortgage coverage. | Only covers your home loan, not other expenses. |
| Covers mortgage repayments during illness, injury, or death. | May have exclusions for pre-existing medical conditions. |
| Peace of mind and financial security. | Can be more expensive than broader policies, like life insurance. |
| Simplifies financial planning with focused protection. | Limited flexibility compared to income or life insurance. |
| Easier to understand than other insurance types. | Coverage may decrease as your mortgage balance reduces. |
Understand if Mortgage Protection Insurance Is Right for You With Pherrus’ Help
What is mortgage protection insurance?
It’s a smart way to keep your home secure and your family cared for when life doesn’t go as planned.
But how do you know which policy is best?
The qualified insurance experts at Pherrus can advise you on personal insurance, including mortgage protection insurance, as well as business insurance if you’re a business owner.
We’ll review your policy options to find the one that best meets your needs and offers the greatest benefits based on your financial situation and goals.
We know how busy life can be, so we’ll also remind you when to renew your policies and assist you with managing your yearly renewals.
Contact us today by filling out our online form or calling (02) 9099 9109 to book an appointment at our Bella Vista office in Sydney, NSW.
FAQs About “What Is Mortgage Protection Insurance?”
What Does Mortgage Insurance Protect Against?
Mortgage insurance covers your home loan repayments if you cannot work due to illness, injury, or death, protecting your home and family.
Is Mortgage Protection Compulsory?
No. Mortgage protection insurance is an optional policy to help safeguard your home loan repayments in case of unforeseen circumstances that leave you unable to meet your repayments.
What Kind of Life Policy Typically Offers Mortgage Protection?
A term life insurance policy often offers mortgage protection, providing coverage for a set period.
It can be tailored to pay off your home loan if you pass away during the policy term.
