Do You Need Life Insurance For A Mortgage?

Elaine Brookes Steve Case

Author: Steve Case - Insurance Expert

Reviewed & Fact Checked By: Elaine Brookes

Updated: 31st December 2023

Do you need life insurance for a mortgage?

If you’re considering buying a house, there are a lot of essential factors you need to consider before doing so. One of the most significant is how you’ll protect your property.

Our team has been asked frequently, do you need life insurance for a mortgage? Although getting life insurance for a mortgage isn’t a legal requirement, it might be a sensible decision to secure one for the safety and wellness of your family in case any unexpected circumstances happen in your life.

This guide will help you understand the topic of life insurance for your mortgage and its significant role in your family life. 

Read on and find out how you can ensure your family’s financial security for their stable future in your family home and your peace of mind.

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Life insurance for mortgage in the UK

What Is Mortgage Life Insurance?

Like regular life insurance, mortgage life insurance provides financial security to your loved ones should anything happen to you. It’s a life policy that you can take out to pay off your mortgage in case you suddenly pass away during the term of your loan. 

Mortgage life insurance is also referred to as mortgage protection or mortgage protection life insurance. 

Your policy term usually covers the length of your mortgage term. Therefore, if your mortgage period is established for 30 years, your mortgage life insurance policy would run for a minimum of this period. 

Types of Mortgage Protection Policy

There are normally two types of life insurance used for mortgage protection – decreasing term and level term life policy.

Decreasing term life cover is the more commonly used policy specifically designed to cover the remaining balance of your mortgage payments. The pay-out sum is set to reduce in value over the course of the policy period, corresponding with the outstanding mortgage amount. 

On the other hand, the pay-out amount doesn’t decrease over time for level-term life cover. For that reason, this type of life insurance policy works better for an interest-only mortgage.

Depending on your budget and the type of your mortgage, you can choose between those two life policy options to meet your insurance needs. Both protection forms are designed to ensure your loved ones are provided with financial security in case you’re no longer around. 

Mortgage Insurance or Life Insurance – Which One is Better?

Mortgage payment protection (MPPI) and life insurance are two variants of life policy designed to cover your mortgage if anything were to happen to you. 

MPPI is a type of policy based on income protection that can be used to cover your mortgage debt in case you lose your job or become seriously ill or injured due to an accident.

The policy pays out a percentage of your usual income, and the payments can be made in full as long as they don’t exceed the upper limit specified in your policy.

Your mortgage payments will be covered throughout the time agreed or until you can return to work. The plan won’t pay off the remaining balance of your debt. 

Life insurance required for a mortgage?

Life insurance would provide a round sum payment if you were to pass away unexpectedly during the term of your protection scheme.

Depending on your personal circumstances and needs, you can choose from a variety of life insurance policies so you can take care of your family’s financial stability and wellness. We have written a detailed guide on determining how much life insurance you might need and a breakdown of the average cost of life insurance cover in the UK.

You can add critical illness cover to your policy, allowing you to make an early claim if you become seriously ill and have difficulty working. Terminal illness cover can also be added to your scheme as standard to receive an early payment in case you were given less than 12 months to live. 

The pay-out amount from your life insurance and illness-related guidelines can cover your mortgage repayments or help pay off the outstanding mortgage balance in total.

Mortgage Payment Protection Vs Life Insurance

Mortgage Payment ProtectionLife Insurance
Offers protection for a short period of timeLong-term protection is available (even up to 40 years)
It will pay out in case you’re made redundant or become unable to work due to illness or accidentIt will pay out when you pass away
The policy usually includes upper limitsYou can add critical illness cover to your policy at an additional cost
The total amount of payments may not be made if your monthly payment is over the upper limitTerminal illness cover is available in a term policy at no extra fee
The pay-out amount can be up to £1,000,000
Full mortgage repayment is possible

Your mortgage debt is undoubtedly one of the most significant debts you will have, so it’s worth considering some form of protection. 

If you’re looking for a policy to cover a shorter period of time, MPPI might be just what you require. However, for a long-term protection plan that will provide your loved ones with a secured future in their family home, you might need to take out a life insurance policy.

You can also benefit from a full cover for your mortgage if you secure both types of protection schemes simultaneously.

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Key Takeaways

Taking out life insurance for your mortgage is a sensible idea to protect your family with the necessary funds in case you were to die unexpectedly. 

Depending on your individual needs, you can benefit from mortgage payment protection or life insurance designed to cover your desired short-term or long-term policy period.

To provide your family with the most suitable protection policy, you can use Insurance Hero’s comparison tool. You’ll have the opportunity to compare different insurance policies from creditable UK insurance suppliers and choose the one that meets your requirements. 

Ensure your dependents are taken care of by protecting your mortgage with a life policy that will provide for your loved ones if you’re no longer with them. 

Mortgage Life Insurance FAQs

Is It a Legal Requirement to Have Life Insurance for a Mortgage?

You’re not legally required to have life insurance for your mortgage. Most mortgage suppliers won’t expect you to secure a life protection policy to be approved for a mortgage.

In some cases, lenders may ask you to secure a life policy as a prerequisite for your loan and a condition to release any funds to you.

Although life insurance for a mortgage isn’t obligatory, it might be a sensible idea to have it in place. It’s worth considering whether your relatives would have the funds to afford mortgage repayments if you were to die unexpectedly. 

How Long Should I Have Life Insurance For?

The length of your insurance period will depend on your individual circumstances. If you’re taking out life insurance for your mortgage protection, your policy will be aligned with your mortgage period. 

It’s crucial to establish the pay-out amount to mirror the outstanding balance of your mortgage debt. It should be at least equal to your mortgage. 

Moreover, you might have other important aspects of your life, like family living costs. Therefore, you may want to consider having your policy last longer than your mortgage until, for example, your children achieve financial independence.

Do I Need Life Insurance If I Don’t Have a Mortgage?

You can decide whether you need life insurance depending on your personal needs. Securing your mortgage isn’t the only reason why you might want to take out a life protection policy. 

Life insurance can protect numerous vital aspects of your life if anything were to happen to you unexpectedly.

Some of them include:

If you have dependents, such as a partner or children, you can ensure they are financially protected in case of your death if you secure a life policy. 

How Much Is Mortgage Life Insurance Per Month?

The amount you’ll pay for your life protection policy will depend on your individual circumstances. At the application stage, you’ll be asked questions regarding your personal information like:

  • Your age
  • Your health and wellbeing
  • Your medical records
  • Level of policy required 
  • Length of the policy term

This information is crucial for the insurers to establish the risk level you pose and therefore calculate your premium based on the given details.

Those whose risk levels are considered to be higher will pay higher premiums than those classified as low risk. For example, if you’re a smoker, you may pay a higher premium than non-smokers.

To make sure you’re getting the most cost-effective option for your life insurance policy, get your free quote today and secure a reliable and affordable protection cover for your family’s safety.