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Mortgage life insurance

Protect your family with mortgage life insurance

  • Get cover to pay off your mortgage if you pass away

  • Compare life insurance quotes from Aviva, Legal & General, Zurich and more

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What is mortgage life insurance?

Mortgage life insurance is designed to pay off your mortgage when you die. It's usually available as a decreasing term or a level term life insurance policy.

It ensures your loved ones can keep your home if you die unexpectedly, and that they aren’t left with mortgage repayments they can’t afford.

With both decreasing term and level term policies, just like standard life insurance, it pays out a lump sum if you die during the policy. However, with decreasing term policies, the lump sum payout will decrease in line with the balance of your mortgage. So, if you die towards at the start of your policy, you should get a larger payout than if you die towards the end.

Because the payout decreases over time, this usually makes it cheaper than level term policies, which pay out the same amount no matter when you die. Decreasing term policies are usually more suited to repayment mortgages where the mortgage balance decreases over time. If you have an interest only mortgage where repayments only cover the interest and the balance of the mortgage is fixed, a level term life insurance may be more suitable for you.

Do you need life insurance for a mortgage?

While it’s not a legal requirement, mortgage lenders might ask you to take out life insurance when getting a mortgage.

They might offer you life insurance themselves, but you don’t have to take them up on this. In fact, it’s worth comparing life insurance policies to find a better deal. We compare the most popular life insurance providers and find your best price for the amount of cover you need.

If you die before your mortgage is paid off, your loved ones might be left with repayments they can’t afford. In some cases, this could force them to sell your home to cover the outstanding debt. Mortgage life cover helps avoid that.

It might also take some of the financial strain off your family if you die unexpectedly. Without a mortgage to pay, they might be able to support themselves better financially in your absence. This could help make an extremely difficult time that little bit easier and give you a little peace of mind that they wouldn’t struggle financially without you.

What’s the difference between life insurance and mortgage life insurance?

The main difference is the payout your loved ones get. With both mortgage life insurance and life insurance policies, there are two policy options - decreasing-term life insurance and level-term life insurance.

  • Mortgage life insurance is commonly bought as a decreasing term life insurance policy. This means that it pays out less the further into your policy you get. Because it decreases over time, it's usually more suited to repayment mortgages where your balance is also decreasing as you make regular payments.
  • Life insurance is a catch-all name for many policy types, but the most common policy option is level term life insurance. It pays out the same amount no matter when you die, which is why it generally costs more than decreasing term life insurance. It can be used to pay off a mortgage, but is usually more suited to interest only mortgages where monthly mortgage payments only cover the interest and the mortgage balance is fixed. It could be a beneficial choice if there are other debts to consider alongside a mortgage, or you also want to provide some extra financial stability for your family.

Most life insurance policies run for 20 to 30 years, or until you hit a set age limit. If you’re still alive after this time period, or after your mortgage is paid off, the policy ends and you get no payout. On the other hand whole life insurance policies are designed to cover you for as long as you want them to.

How does mortgage life insurance work?

When taking out a mortgage life insurance policy, you:

  • Choose the amount of cover you need. This is usually the amount you owe on your mortgage.
  • Choose how long you want your cover to last. This should be the same length as your mortgage.
  • We’ll then show you our best deals for the amount of cover you need. Simply choose the one that best suits your needs.

Once you’re accepted, you start paying your monthly premiums.

If you die during the policy term, your policy should pay out however much is left to pay on your mortgage. This lump sum goes to the people you name as your beneficiaries, who can use this money as they see fit. Since mortgages are usually the biggest financial burden, this payout could be used to clear that outstanding debt.

How much mortgage life cover do you need?

The amount of cover you take out should match the amount you owe on your mortgage. As everyone’s mortgage is different, the amount you need is specific to you.

The amount your policy pays out over time, so you should check that it goes down at the same rate as your mortgage. Take out too little cover, and your payout might not be enough to clear your mortgage if you die.

Taking out too much cover is also a possibility. Do this and you could be paying more in premiums than you need to be.

Bear in mind that if you extend your mortgage, or increase the amount you borrow, you should update your policy to ensure it covers your new mortgage. Get in touch with your insurer if this is the case.

The best way to get a policy that works for you is to tie your cover amount to the amount you owe on your mortgage. You can check your latest mortgage statement, or speak to your lender to get the most recent balance on your mortgage

Struggling to work out the right amount? Try our tips on figuring out how much life insurance cover you need. Or let our life insurance calculator do it for you.

Need more help?

Our life insurance calculator can help you work out how much cover you need.

How much is mortgage life insurance?

Life insurance costs vary, as insurers work out premiums based on a range of factors.

We've set out some examples below for different ages. These are based on a decreasing term policy with £100,000 of cover over 20 years.

Age Monthly cost1
18
£3.06
25
£3.83
30
£3.97
40
£5.07
50
£10.70

1. Based on £100,000 of decreasing term cover for 20 years, non smoking male with no underlying health conditions (Feb 2022).

How do you get a mortgage life insurance quote?

Getting a quote is quick and easy.

We’ll need a few details from you. Having these to hand can speed up the process. We’ll ask you for:

  • Your name and age
  • The amount of cover you need
  • An overview of your medical history
  • Whether you have any pre-existing conditions

If you’re applying for a joint policy, we’ll also need the joint applicant’s details.

We’ll then compare quotes from the insurers we work with to find you our best deal.

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Do you have to pay tax on your mortgage life insurance pay-out?

Your life insurance payout forms part of your estate. This is the sum total of everything you leave behind after you die.

If the value of your estate is less than £325,000, your beneficiaries pay no tax on it. If your estate, including your payout, exceeds £325,000, they have to pay 40% inheritance tax on anything above that threshold.

There are legal ways to avoid this. Writing life insurance in trust allows you to keep your pay-out separate to your estate. This way, your beneficiaries get the full amount tax-free, even if your estate still exceeds £325,000.

This could be worth considering if your mortgage exceeds £325,000. If your pay-out is over the threshold, it might not be enough life insurance to cover your mortgage after tax. Putting your policy into a trust may be a smart way to ensure they get the full amount.

Mortgage life insurance

Does mortgage life insurance cover pre-existing medical conditions?

A pre-existing condition is an illness or long-term injury you were aware of before taking out a life insurance policy.

Common pre-existing conditions include:

  • Asthma
  • Diabetes
  • Heart disease

Insurers have their own list of what counts as a pre-existing condition, so it’s worth checking with them before taking out a policy.

You should still be able to get mortgage life insurance if you have a non-life-threatening pre-existing condition - you might just have to pay a little more in premiums.

Can you get critical illness cover with my mortgage life insurance?

Yes. Critical illness cover is a life insurance add-on that gives you an extra level of protection against life-changing illnesses and injuries.

You add this as an extra to your mortgage life insurance policy. This way, if you suffer a severe health issue, you can pay off your mortgage while you’re still alive. Depending on your policy, your critical illness payout could be:

  • The full amount you’re covered for under your life insurance policy
  • A separate amount that you choose when signing up.

What our life insurance expert says

Mortgage life insurance can be a great way to ensure your family can keep your home if you pass away. Just make sure to take out the right amount of cover so that your pay-out drops in line with your mortgage, otherwise you could be paying more in premiums than you need to be.

expert comment signature Louise Thomas personal finance

Louise Thomas

Life insurance expert

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Need more help?

Is mortgage life insurance the same as mortgage protection insurance?

No, these are different policies. Mortgage life insurance gives a lump sum to pay off your mortgage in full if you die. Mortgage protection insurance covers your mortgage repayments for a short time if you’re too ill to work or if you lose your job.

Most mortgage protection insurance policies pay out for a maximum of a year. This could help you stay afloat if you’re ill and need time to recover, or while you’re looking for a new job. But mortgage insurance is designed to clear your mortgage entirely after you’re gone. This ensures your family aren’t left with a large amount of debt that they can’t afford and prevents them needing to sell your home.

Should my partner and I take out joint mortgage life insurance?

Joint life insurance policies cover two people at once, so if either of you die, your beneficiaries get a pay-out. After that, your policy ends.

This could be useful if you have a mortgage together, as it lets your family pay off the debt if one of you passes away.

The downside is that joint policies only pay out once. If you both die at the same time, your beneficiaries only get a single payout. This might be enough to cover the mortgage, but it might not be enough to cover other things, such as:

  • Other debts e.g. credit cards, personal loans, car finance agreements
  • Funeral costs
  • Financial support for your children and loved ones after you’re gone

You could secure yourself against this by taking out two policies - a joint mortgage life insurance policy, and a second joint life insurance policy, for example. That way your payouts cover both your mortgage, and the outgoings your family would need to keep living comfortably.

If you’re simply looking to make sure your mortgage is covered, though, then a joint mortgage life insurance policy could be worth considering.

Just be aware that if you separate from your partner and decide to terminate your policy, you won’t get back what you’ve paid in premiums.

Anyone over 18 can be part of a joint life insurance policy. They don’t need to be a spouse or relative, but you do need to share the same address.. Joint mortgage life cover is usually more expensive than single life insurance policies as you’re covering two lives at once. But it’s usually cheaper than taking out separate policies for each person.

Can I change my policy if I get divorced or move home?

Yes you can. If you’re the only policyholder and your marriage ends you can keep paying your mortgage life insurance premiums and to stay covered

If you have a joint policy, you should be able to remove the second policyholder and continue with a single person policy. Your monthly payments are likely to change, so get in touch with your insurer to see what they can offer you.

The same is true if you move home. You should be able to keep your existing policy but tweak it to better suit your new situation. Calling your insurer is the easiest way to see what your options are. Or try our guide on how to change your life insurance policy for tips on what to look out for.

When could my mortgage life insurance policy not pay out?

Most policies cover you if you die due to illness or an accident. But there are a few situations where your mortgage life cover might not pay out.

These can include death as result of:

  • Drug or alcohol abuse
  • A reckless act
  • Suicide

Failing to pay your premiums could also deprive you of a payout. Miss too many, and your policy could be terminated. You’d then lose everything you’d paid so far and might not get a payout if you died. Most policies have a grace period in which to pay, though, so if you do miss a payment, you might be able to make up that balance and keep your cover. If you’re struggling to meet your monthly payments, it’s best to get in touch with your life insurance provider before things get that far.

Does mortgage life insurance cover terminal illnesses?

Many life insurance policies pay out if you’re diagnosed with a terminal condition. If the condition is included in your policy details, you should be able to claim for the full amount while you’re still alive. You can then use it to pay off your mortgage before you die, making your remaining time a little easier for you and your family.

Generally, an illness is terminal when it can’t be cured and it limits your life expectancy to 12 months or less. Some insurers might have a different definition of what a terminal illness is, however, so it’s worth checking with them before you take out a policy.

Terminal illness cover is free of charge. This is different to critical illness cover, which is an add-on to your life insurance policy that comes at an extra cost.

Will I need a medical to get mortgage life insurance?

Some insurers might ask you to have a medical examination before they offer you cover. Whether you’re asked to have one depends on a range of factors, including your:

  • Age
  • Health
  • Lifestyle habits
  • Family medical history

Let’s say you’re a fit, non-smoking 30-year-old with no pre-existing medical conditions. You’re less likely to be asked to have a medical than someone older with a more complicated medical history, or who’s smoked their whole adult life..

The point of a medical is to assess your general state of health. This helps insurers determine your risk of dying during the term of your policy. This risk in turn determines your monthly payments. If you’re not in the greatest of health, your policy might be a little pricier than someone who’s a little healthier.

If you’re older and are concerned about being asked to have a medical, or if you have a pre-existing condition, consider over-50s life insuranceYou should be able to find cover without disclosing anything about your state of health. The only drawback is that the payout you’ll get might be lower with an over-50s policy. Before you sign up, make sure it’s enough to cover your mortgage.

Does my mortgage life insurance payout have to be used for my mortgage?

If your beneficiaries make a successful claim after you die, the payout goes directly to them. It’s then up to them how the money is used. They could use it to pay towards funeral costs, or cover other debts./p> However, most people use the payout to cover the costs of the mortgage. As this is usually the biggest outstanding debt, paying it off takes a lot of the financial strain off losing a partner, or parent. It also means they’re able to keep their home, rather than having to sell it to cover these debts.

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