Life insurance is not normally a legal requirement for getting a mortgage in the UK. However, many homeowners choose it so their family would have financial support if they died during the policy term.
This guide explains the main options in plain English, what mortgage life insurance can and cannot do, and the questions worth considering before choosing cover.
Is life insurance compulsory for a mortgage?
No. In most cases, you do not legally need life insurance to take out a mortgage. A lender will usually require buildings insurance, but life insurance is different.
That does not mean life insurance is unimportant. If your household depends on your income, a payout could help your family repay some or all of the mortgage, meet everyday bills or adjust financially after your death.
How can life insurance help with a mortgage?
A suitable life insurance policy can pay a lump sum if the insured person dies during the policy term, subject to the policy conditions. The people receiving the money could use it towards the outstanding mortgage and other family costs.
The policy is not automatically connected to your mortgage. The amount, term, ownership and beneficiary arrangements need to be considered carefully. Placing a policy in trust may also affect how and when a payout reaches the intended people, so professional advice can be valuable.
What type of life insurance is commonly used for a mortgage?
Decreasing term life insurance
The potential payout reduces over time. It is often considered alongside a capital-and-interest repayment mortgage because the outstanding mortgage balance should also reduce. The two amounts are not guaranteed to match exactly, and the policy assumptions and mortgage interest rate matter.
Level term life insurance
The potential payout stays the same throughout the chosen term. This may leave more money available for wider family needs, rather than focusing only on a reducing mortgage balance. It can also be considered for an interest-only mortgage, depending on the household’s circumstances.
Two individual policies or one joint policy
A joint policy usually pays once and then ends. Two individual policies can potentially pay separately if both insured people die during their respective policy terms, but they may cost more. The most suitable structure depends on budget, family circumstances and the protection needed.
How much cover might a family consider?
The remaining mortgage is an obvious starting point, but it is not the whole picture. A useful conversation may also include:
- other debts and regular household bills;
- how much income the family would lose;
- childcare and education costs;
- existing savings and investments;
- death-in-service benefits from work;
- how long financial support might be needed; and
- the family’s monthly budget.
More cover and a longer term will usually affect the premium. Age, health, medical history, smoking status, occupation and lifestyle can also influence the price and the terms offered.
What if illness stops you working?
Life insurance is designed primarily to pay on death. It does not normally replace your monthly earnings if illness or injury prevents you from working.
Income protection may provide a regular benefit after a chosen waiting period if you meet the policy definition of incapacity. Critical illness cover may provide a lump sum following diagnosis of one of the serious conditions listed in the policy. These products solve different problems, so it is important not to assume one automatically includes the others.
Does being healthy or active make life insurance cheaper?
Insurers consider a range of health and lifestyle information when assessing an application. Being active can support general health, but it does not guarantee a cheaper premium or acceptance. Some protection plans also offer eligible customers rewards or benefits connected with healthy activity and everyday choices.
Read our guide to activity and life insurance costs.
Questions to ask before arranging cover
- Who would struggle financially if I died?
- Would one income be enough to keep the home?
- How much is still owed on the mortgage?
- What protection do I already receive through work?
- Do I need support for bills and childcare as well as the mortgage?
- Should the policy be written in trust?
- When should the cover be reviewed?
Start with a simple protection conversation
You do not need to know which policy you want before making an enquiry. Start with your mortgage, family and monthly commitments. A regulated protection adviser can then discuss your circumstances, explain the available options and make a recommendation where appropriate.
Start your ActiveJoe enquiry — it is quick to complete and there is no obligation to proceed.
This article provides general information and is not personal financial advice. Cover is subject to eligibility, underwriting and policy terms. ActiveJoe is operated by Tailored Life Solutions Ltd. ActiveJoe itself does not provide financial advice; regulated advice is provided by Tailored Life Solutions Ltd advisers.