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Life insurance for mortgages

If you’re thinking of getting a mortgage, consider taking out a mortgage life insurance policy too. Find out how using some of your income today can protect your loved ones financially if you die.

If you’re thinking of getting a mortgage, consider taking out a mortgage life insurance policy too. Find out how using some of your income today can protect your loved ones financially if you die.

Written by
Anna McEntee
Insurance comparison expert
Reviewed by
Faith Archer
Insurance expert
Last Updated
6 JUNE 2023
10 min read
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What is mortgage life insurance?

Mortgage life insurance is a type of insurance that acts as mortgage protection. It typically pays out a lump sum that can be used to help your dependants clear your mortgage if you die. This type of life insurance is often sold as a 'decreasing-term' policy, which means that as you gradually pay off your mortgage, your potential pay-out also reduces over time.

By providing a lump sum to pay off mortgage debt, your loved ones will have one less financial burden at an already difficult time.

What mortgage life insurance protection do I need?

Types of insurance you should consider when taking out a mortgage include:

  • Life insurance – this could protect your loved ones if you die during the mortgage term, helping to pay off the outstanding mortgage balance. This is particularly important if you have a joint mortgage with a partner or spouse who’ll be left with the extra cost when you’re gone.
  • Critical illness insurance – this is designed to provide a lump sum that can be used to pay off your outstanding mortgage balance, if you’re diagnosed with a specified ‘critical’ illness.
  • Buildings insurance – mortgage providers will usually insist that you take out buildings insurance, as part of their mortgage offer. This is to protect their investment, but it should also protect you, if your home is damaged or destroyed.

Do you need life insurance for a mortgage?  

You don’t have to take out life insurance for a mortgage; it’s not a legal requirement. But some providers might want you to have a policy in place as a condition of their mortgage offer.

Many people take out insurance at the same time as getting a mortgage, seeing the expense as a small addition to their monthly mortgage payments. 

A mortgage life insurance policy is designed to provide peace of mind so that if the worst happens, your family won’t struggle to meet the mortgage bills and will still have a roof over their heads. If you don’t have dependants, you may decide it’s not necessary.

How does mortgage life insurance work?

If you have a repayment mortgage, part of your payment each month is used to chip away at the amount borrowed and part is used to clear any interest owing. The outstanding balance on your mortgage therefore goes down over the years.

Mortgage life insurance is usually designed so that the amount of cover you’d get decreases over the policy term, in line with your outstanding mortgage balance.

Learn more about how decreasing term life insurance works.

What’s the best mortgage life insurance cover?

The best mortgage life insurance cover will depend on you and your circumstances. For example, if you’re slightly older or have a pre-existing medical condition, you might have to pay more for your policy. If you’re younger with no medical problems, you could get the same cover at a cheaper price. 

How much cover do I need from a mortgage life insurance policy?

You need to make sure that your policy covers the amount left on your mortgage. Because of this, the amount of cover will be different for everyone.

With a decreasing term life insurance plan, make sure you get enough cover to pay off your mortgage from the start, then match the length of your policy to your remaining mortgage term so the pay-out reduces over the years in line with the reducing mortgage balance. 

It’s important to remember that if you move home or remortgage, you’ll need to make sure you have adequate cover in place. Otherwise, you could end up with one of the following: 

  • A pay-out that isn’t enough to cover your mortgage
  • Overpaying for cover that you don’t need
  • A policy that lasts for a longer or shorter time than your mortgage.

How much does mortgage life insurance cost?

The amount you pay for this type of life insurance depends on factors including: 

  • Your age
  • Your occupation
  • Your health and medical history
  • Lifestyle factors, such as whether you smoke
  • The mortgage amount owed, term and interest rate. 

A mortgage life insurance policy will typically cost less than a ‘level term’ life insurance policy, which is designed to pay out the same fixed lump sum throughout the policy. 

The best way to get an idea of how much you could expect to pay to protect your loved ones is by doing a quick comparison with Comparethemarket, filling in a few details about you and the level of cover you need.  

Check the outstanding balance on your mortgage, how many years are left before you pay it off and the interest rate. Then simply answer a few questions about yourself and we’ll provide you with a range of quotes for life insurance from our panel of providers.

What else should I consider?

If you want to cover more than just your mortgage, you might want to consider level term life insurance. This could provide a larger fixed pay-out for things like:

  • Daily living costs to help your family cope financially
  • Childcare and education costs
  • Other debts, such as a loan or credit cards, which your family would struggle to pay. 

Level term life insurance might also be more suitable if you have a less common interest-only mortgage. With an interest-only mortgage, your monthly payments only clear the interest and don’t dent the amount borrowed, so the balance doesn’t go down over the years. You therefore need life cover that would pay out the same fixed amount throughout the mortgage, for the peace of mind that your loved ones could pay off the mortgage if you died.

Compare the various options and policy details to find cover that’s right for you. 

If you’d like some advice on life insurance for a mortgage, contact one of the advisers at LifeSearch. Give them a call on 0800 072 1147.

Lines are open:
Monday to Friday: 8am-8pm
Saturday: 9am-2pm
Sunday: 10am-3.30pm

Can I cancel my life insurance policy?

You can cancel your life insurance policy at any time. However, your cover will end and your nearest and dearest will no longer be able to make a claim if you die. If you decide to cancel your life insurance policy, you won’t get a refund for the premiums you’ve already paid. 

Most life insurance providers offer an initial period, typically 30 days, when you can cancel your policy free of charge and get a refund for any premiums paid so far. 

Check your paperwork carefully to find out if you’re eligible for this cooling-off period, how long it lasts and when it begins. It typically starts from the day you receive your policy documents.

Is there a difference between life insurance and mortgage life insurance? 

Mortgage life insurance is just one of the many forms of life insurance. With life insurance, the beneficiary receives a payment that can be used however they wish. With mortgage life insurance, the payment is specifically designed to cover the remaining amount owed on a mortgage.

Should I get critical illness insurance with mortgage life cover?

If you fall ill with one of the severe illnesses listed on the policy, critical illness cover should provide a lump-sum payment that can pay off some or all of your mortgage. Removing this financial burden gives you the chance to recover, with less pressure to rush back to work.

If you’d like that extra security, critical illness insurance is available through many insurance providers either as a policy addition or in combination with your existing mortgage life insurance policy.

  • With a policy addition, there would be more than one pay-out: for critical illness and death.
  • With a combination policy, there’s just the one payment for either illness or death. 

It’s also worth considering income protection insurance. This pays out a tax-free income if you’re unable to work due to illness or injury.

What happens to life insurance when the mortgage is paid off? 

If you’ve taken out life insurance to specifically cover your mortgage, the policy should end when your mortgage has been fully paid off. So, if your mortgage lasts for 25 years, you’ll typically choose a policy that also lasts for 25 years.

If you still want life insurance once the term has ended, you’ll need to take out a new policy.  

Do I need life insurance once the mortgage is paid off?

If you’ve cleared the mortgage, but still want to leave your loved ones something, you might want to consider a new life insurance policy. If you’re mortgage-free and approaching your retirement years, it might be worth looking at over 50s cover. As long as you pay your premiums, this type of cover offers a guaranteed pay-out, no matter when you die.

Frequently asked questions

Am I eligible for mortgage life insurance?

As long as you’re over 18 years old and a UK resident, you should be eligible for mortgage life insurance. Some insurance providers may have an upper age limit for taking out a policy.

Can I get life insurance from my mortgage provider?

Your mortgage provider may encourage you to take out a life insurance policy with them when taking out a mortgage. Getting your mortgage and life insurance from the same provider may seem convenient, but you don’t have to do so. You could find a cheaper deal elsewhere by comparing mortgage life insurance quotes.

Can I put a mortgage life insurance policy in trust?

Yes, just like standard life insurance, you can put your mortgage life insurance policy in trust. This is a good idea if you want to protect your pay-out from inheritance tax. Normally, if you die while your policy is running, the pay-out will become part of your estate. Depending on the value of your estate, inheritance tax may have to be paid before your dependants receive the money.

If you write your policy in trust, the pay-out escapes any inheritance tax and goes straight to your trustees without being held up by probate.

Can I get a mortgage life insurance policy if I have a pre-existing medical condition?

You can get mortgage life insurance if you have a pre-existing medical issue, but you may need to pay higher premiums. 

Most insurance providers will assess applications individually, so it could depend on the severity of your condition. Different providers take different views, so it’s worth shopping around.

It’s important to tell your insurance provider about any medical problems that could affect your claim. If you don’t, they could refuse a pay-out. 

Read our guide on life insurance and pre-existing medical conditions.

Will mortgage life insurance affect my mortgage interest rates?

No, taking out mortgage life insurance shouldn’t have any effect on the interest rate on your mortgage. 

However, if your interest rate goes up, it could mean any mortgage life insurance pay-out would no longer cover your outstanding balance. 

Don’t forget to review your life insurance policy if you move house, remortgage or if your circumstances change.

Will I be covered if my mortgage provider goes bust?

If your mortgage provider goes bust, your mortgage will be transferred to another provider by financial regulators. Your life insurance will generally be with an insurance provider, so the fact that your mortgage has switched to another provider shouldn’t make any difference. If you die during the term of the insurance, it should pay out – provided you’re still eligible.

Should I have two single policies or joint cover?

One joint life insurance policy can be cheaper than two single policies, but if one of you died, the policy would end after paying out.

If you separate, you might not be able to split a joint policy between you. However, one of you may be able to convert the policy into a single plan to cover the mortgage. Check with the provider to see if this is possible.

Couples who have a mortgage together are perhaps the most suitable for joint cover. But taking out two single life insurance policies offers you the flexibility to list additional beneficiaries and change them depending on your situation, and the potential for two separate pay-outs if the worst happens.

What is mortgage protection insurance?

Mortgage protection insurance is a type of income protection that will cover your mortgage payments if you’re unable to work because of an accident, sickness or unemployment.

Unlike life insurance, which pays out when you die, mortgage protection insurance pays a set amount each month to cover your mortgage payments until you’re able to return to work.  

What happens to a mortgage if you don’t have life insurance?

If you have an outstanding mortgage when you die, it still needs to be paid. The money to cover the payments will be taken from your estate before your beneficiaries can receive any remaining assets.

If you don’t have life insurance and there’s not enough money left from your estate to cover the outstanding mortgage balance, the property could be repossessed and sold by your mortgage provider to clear the debt. Without mortgage life insurance, your loved ones could be at risk of losing the family home.  

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