At a glance
In a hurry? Here are the key points to know:
Mortgage life insurance can pay out a lump sum to cover your remaining mortgage repayments if you die.
It’s often taken out as decreasing term cover, which means the payout reduces over time, in line with your mortgage balance.
Mortgage life insurance premiums are typically fixed, meaning you’ll pay the same monthly amount even as the potential payout reduces.
You’re not legally required to take out life insurance when you get a mortgage, but consider whether your family could handle the debt if you were to die.
Other types of insurance could help cover your mortgage payments, including critical illness cover and income protection insurance.
What is mortgage life insurance?
Mortgage life insurance is designed to cover your mortgage repayments if you die before paying it off. It typically pays out a lump sum that your dependants can use to help clear your mortgage.
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 payout also reduces over time.
By providing a lump sum to pay off mortgage debt, you can leave your loved ones with one less financial burden at a difficult time.
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 typically designed to mirror that. With decreasing term life insurance, the amount of cover falls in line with your outstanding mortgage balance. This means if you were to die during the term, the payout would usually be enough to pay off what’s left of your mortgage.
Even though the cover amount decreases, your monthly premiums usually stay the same throughout the policy term.
If you have an interest-only mortgage, you might prefer a level term life insurance policy instead. The payout amount stays the same over the term, which could help your family pay off the full mortgage balance or provide additional financial support.
Learn more about how decreasing term life insurance works.
What types of mortgage protection are available?
There are a few different types of insurance you could consider when taking out a mortgage. They include:
Life insurance
Life insurance could protect your loved ones if you die during the mortgage term, by 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 to pay off the remaining debt when you’re gone.
Critical illness cover
Critical illness insurance 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 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 may choose to take out life insurance at the same time as getting a mortgage, to provide a financial safety net for your family.
You don’t have to take out life insurance for a mortgage; it’s not a legal requirement.
Your mortgage broker or mortgage provider may look to upsell you a life insurance policy as part of your mortgage application, but you’re under no obligation to take this out.
Instead, you’re free to compare policies from other insurers, which may be more affordable or flexible.
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.
It can be worth considering when buying a house as a couple, as your mortgage repayments may be based on two salaries and could be too high for your partner to cover alone. It could also provide financial reassurance for your loved ones if you’re the main breadwinner.
What’s the best mortgage life insurance cover?
The best mortgage life insurance cover for you can depend on who you want to protect and for how long.
For example, do you want a payout to cover just your remaining mortgage payments, or do you want to provide broader protection for your family while your children are growing up?
What cover is best suited to you can also depend on your circumstances and, of course, your budget.
For example, if you’re 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 level of cover at a cheaper price.
How much cover do I need from a mortgage life insurance policy?
A mortgage life insurance policy usually 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 payout reduces over the years in line with the reducing mortgage balance.
It’s important to remember that if you move home or remortgage, you may need to adjust your policy to make sure you have adequate cover in place. Otherwise, you could end up with one or more of the following:
A payout 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 decreasing 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.
A great 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 Compare the Market, 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 answer a few questions about yourself, and we’ll provide you with a range of quotes for life insurance from our panel of providers.
Compare life insuranceWhat 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 payout for things such as:
Daily living costs to help your family cope financially
Childcare and education costs
Other debts, such as a loan or credit cards.
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.
Because the balance doesn’t go down over the years, you'd need life cover that would pay out the same fixed amount throughout the mortgage.
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 cooling-off 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 could provide a lump-sum payment that can pay off some or all of your mortgage or help with other living costs. 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 payout: for critical illness and death
With a combined policy, there’s just one payment for either illness or death.
It’s also worth considering income protection insurance. This can pay out a percentage of your regular income, tax-free, 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 payout, no matter when you die.
FAQs
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, but you don’t have to do so.
Getting your mortgage and life insurance from the same provider may seem convenient, but it may not be your best option. 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 payout from inheritance tax.
Normally, if you die while your policy is running, the payout 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 payout should escape 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 condition, 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 payout.
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 payout 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 it will only pay out once, when the first one of you dies.
If you separate, you may be able to split a joint policy between you, but it depends on the provider. Alternatively, one of you may be able to convert the policy into a single plan to cover the mortgage. Check with the provider to see what’s 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 have different cover levels and list additional beneficiaries. Plus, there’s the potential for two separate payouts 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 involuntary redundancy. It’s sometimes called mortgage payment protection insurance (MPPI).
Unlike life insurance, which pays out when you die, mortgage protection insurance pays a set amount each month to cover your mortgage payments either for a set term or 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. If you have a joint mortgage, it will fall to your partner to continue with the repayments.
Otherwise, the money to cover the payments may be taken from your estate before your beneficiaries can receive any remaining assets.
If 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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Tim Knighton is an expert in building and managing relationships with big brands for the benefit of customers, with more than 20 years of experience. He seeks out the right products that look after you and those you love most during the toughest times.
Stephen Maunder is an experienced personal finance editor, having spent more than a decade working for consumer print and online titles. He won several industry awards for his personal finance features at Which?, before becoming Deputy Editor at Compare the Market.
Faith Archer is an award-winning money journalist, previously Deputy Personal Finance Editor at The Daily Telegraph and now a columnist at Yours and blogger at Much More With Less. Faith has written about money matters as a freelance journalist for publications including The Telegraph, The Financial Times, the Sunday Times, Mirror Online, Woman&Home, Woman, Woman’s Weekly and the government’s Money and Pensions Service, as well as appearing regularly on BBC Radio.
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