What is mortgage life insurance?
It's is a policy usually bought to pay off your outstanding mortgage in the event of your death. You may have also heard it called decreasing term life insurance.
How does it work?
Each month you pay your mortgage, the total amount you owe to the bank or building society decreases. If you have a mortgage life policy, the amount paid out in the event of a claim decreases at around the same rate.
While this product and your mortgage aren't linked, and it's up to you to ensure you've selected the right level of cover, the chart below should help to illustrate how the amount the life cover could pay out should reflect how much of your mortgage would be left to pay. This is based on a 25 year mortgage, with £100,000 borrowed*.
*Figures for illustration purposes only
When deciding whether you want to buy level life insurance, or decreasing term life insurance, it might be worth considering:
- If you don't have any dependents, you might want to just make sure your mortgage is covered
- If you do have a family, it could be worth considering a level term life insurance policy to not only cover your mortgage, but also leave your family a nest egg to help them maintain their standard of living after you've gone
- Do you have other financial commitments like loans or credit cards you'd want included in the amount the life policy would pay out? If you're not sure of the total value of your financial commitments, try our mortgage life insurance calculator to get a better idea of how much cover you'd need
Why might I need it?
There are a number of different reasons you could choose to buy mortgage life insurance. As with any type of life cover it's often a very personal decision, but some of the typical reasons could include:
- So your dependents could pay off any remaining mortgage debt if the worst were to happen to you
- Some lenders will ask for you to have a policy in place when you're buying a house
If you’re still not sure which type of cover is right for you, why not read our guide to policy types before you get a quote. If you're looking for a more enhanced level of cover, you could look at mortgage life insurance with critical illness cover; you are able to include this option when you get a quote.
Mortgage life insurance and critical illness cover are quite different. A life policy pays out if you die during the term of the policy, whereas critical illness cover pays out if you develop a critical illness that the provider covers during the term of the policy.
For more information on critical illness cover, take a look at our guide 'What is critical illness life cover?'.