The Kensington Mortgage Company is offering free accident, sickness and unemployment cover (ASU) to new borrowers for the first nine months of their mortgage.
The lender says it is making the move in response to the Government's squeeze on welfare and because of the threat of recession to try to encourage its borrowers to take out cover.
Borrowers are covered for 12 months up to £1,500 a month.
Kensington says that the cover is designed to benefit contract workers, the self employed, those approaching retirement and people with impaired credit records.
Its biggest selling point is that payments will be made immediately the borrower is made redundant or falls ill. Other products on the market can involve a wait of up to three or four months.