Cover on a need to know basis

New home loan customers have to be told about accident, sickness and unemployment policies under a joint Association of British Insurers and Council of Mortgage Lenders statement of practice. Borrowers are told that state help is minimal, and cover can provide a life-line to prevent repossession.

But no one is obliged to sign up for cover that increases monthly payments by more than 6% - £30 on a £500-a-month payment.

Those with a working partner, whose income could cover the mortgage, or who have a cast-iron job contract, or who could rely on savings, may feel able to ignore the blandishments.

Redundancy is the biggest risk, but anyone who is self-employed or on a fixed-term contract or agency work, tend to be excluded from ASU plans. Some insurers have cheaper plans excluding unemployment.

Plans can be set up to cover life insurance and home and contents cover as well as the loan. Many offer free premiums in the first months. Besides the amount covered and premiums, the plans have three main variables:

the time customers have to hold the policy before they can claim - anything between nothing and six months.

the period between losing the job or becoming ill and being eligible to claim - usually 30 or 60 days.

the number of months payments are made - generally 12 or 24 months. Some will "suspend" payments if borrowers get some temporary work.

Lenders are vague on what happens after the payment period - they say few go that long without a job or borrowers can then move to income support.

Insurers cannot stop cover for individuals on the grounds that they are in an occupation or firm where redundancies are likely.

But they can change the terms of a policy for everyone, giving just 30 days notice. There is also the small print. Insurers will turn down claims for unemployment if borrowers know they have a personal risk of job loss when they sign up. But this does not apply to general threats such as "city jobs could disappear".