For many of us, a mortgage is one of the largest outstanding debts we are likely to have. Life insurance can be used to cover almost any of life’s finances, including an outstanding mortgage balance. Unfortunately, a mortgage doesn’t disappear if you die, your mortgage lender will still require what they are owed.

The last thing anyone wants is for our family to struggle financially when we’re no longer around. Thankfully, Mortgage life insurance can help your loved ones pay off the remainder of your mortgage should you die before it has been repaid.

What is mortgage life insurance?

Life insurance is a great way to ease any potential financial burdens that could be placed on your family when you die. It offers your loved ones peace of mind for the future ahead.

Just like a typical life insurance policy, mortgage life insurance pays out a lump sum when you die. This pay-out can then be used to help your family with mortgage repayments. Once you take out the life insurance cover you will begin paying regular premiums to your insurance provider.

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The types of mortgage life insurance

Though getting life cover for your mortgage isn’t mandatory, it’s often considered a good idea. There are two main types of life insurance that can be used to cover a mortgage - term life insurance & whole life insurance.

Term life insuranceprovides protection for a set period of time (i.e 30 years), you only trigger a pay-out if you die within this timeframe. This type of cover pays out a lump sum payment to your loved ones when you eventually die. It is generally considered one of the cheapest types of life insurance.

Term life insurance comes in 3 forms:

  • Level term life insurance - This is the standard type of term life insurance in which your premiums and pay-out amount are fixed. Your family only receives a pay-out if you die during the term of the policy. This is usually the best option if you have an interest-only mortgage.
     

  • Decreasing term life insurance - Usually referred to as mortgage life insurance, this type of policy is designed to cover large payments like a mortgage. 

    The pay-out value decreases over time as you pay off your mortgage. The idea is that when you die, your family can use the pay-out to cover the remaining balance on your mortgage.
     

  • Increasing term life insurance - The pay-out value increases overtime to protect the eventual pay-out from inflation, However, the cost of your premiums may also rise.

Whole life insurance (also known as ‘life assurance’) provides protection for the remainder of your life - so long as you keep up with your premium payments. This type of cover ensures your family of a lump sum payment no matter when you die.

Typically, whole life insurance is one of the most expensive types of life insurance as it provides permanent cover. Although term life insurance is much cheaper, it may only pay out if you die within the policy term.

Whole of life policies can not only cover a mortgage, but can also help with other financial considerations such as: Everyday living costs, household bills, childcare support, inheritance planning and funeral expenses.

Ultimately the amount of cover you choose depends on your circumstances. When it comes to life insurance to cover a mortgage, a key consideration is how much you owe on your mortgage (your outstanding mortgage balance) and how long your  mortgage repayment term is.

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Do I need a joint policy?

If you and your partner or spouse share financial responsibility of your household, it may be beneficial to take out joint cover. A joint life insurance policy provides cover for two people under a single policy.

It is a popular choice amongst couples as it can be cheaper and easier to manage than individual policies. Joint life insurance usually works on a first or second death basis.

With first death cover, the policy pays out after the death of the first policyholder. The cover then ends meaning the surviving member would need to take out further life insurance if required.

With second death cover, the policy only pays out when both policyholders have died. 

How much does mortgage life insurance cost?

With most types of life insurance, when you apply, your insurer will ask you some general health and lifestyle questions. These factor into the cost of your cover as well the eventual pay-out.

The cost of your policy depends on:

Age and health are two of the most crucial factors for determining the cost of your policy. As you get older the cost of life insurance rises as you are more prone to death or developing health conditions. Having pre-existing medical conditions can also raise the cost of your premiums.

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Alternatives to mortgage life insurance

There are several other insurance products that can help with protecting your home's mortgage - not just life insurance. These options include:

  • Mortgage payment protection insurance (MPPI) - This type of cover is designed specifically for protecting a mortgage. It covers the monthly cost of your mortgage if you lose your job or are unable to work due to illness or injury.
     

  • Income protection insurance - Similar to MPPI in that you receive support if you are injured or unwell to work. The main difference is that the money you receive can be used to support any of your finances - not just repayments on your mortgage.
     

  • Critical illness cover - This policy pays out a tax-free lump sum in the event you are diagnosed with a critical illness that meets your insurance provider's definition. This can be used to help with any of your finances, including your mortgage. It’s important to note that not all illnesses are covered - so check your policy terms and Key Facts Document when you apply.

Speak to the experts...

Give our advisers a call today.

Our team of friendly and professional advisers are on hand to help with any questions you may have regarding Life Insurance.

The advisers can also make recommendations tailored to your current situation and will research the market on your behalf, ensuring you secure the cover you need and supporting you every step of the way. 


01392 43 61 93(Monday to Friday, 9am - 5.30pm)

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