What is mortgage life insurance?

Mortgage life insurance is term life insurance taken out specifically to cover your outstanding mortgage balance, ensuring your family can pay off the mortgage if you die.

It's not a separate product - it's simply regular life insurance used for mortgage protection. The policy pays out a tax-free lump sum that your family can use to clear the mortgage debt.

Key features:

• Covers your outstanding mortgage balance
• Term matches your mortgage length
• Tax-free payout to beneficiaries
• Can be level or decreasing term
• Protects family from losing the home
• Often required by mortgage lenders
• Typically £6-£20 per month

Important: While some lenders offer their own mortgage life insurance, independent policies are usually cheaper and offer better terms. Independent cover also stays with you if you switch lenders or remortgage.

How does mortgage life insurance work?

1. Choose your cover amount: Match it to your current mortgage balance (e.g., £200,000)
2. Select policy term: Match your remaining mortgage term (e.g., 25 years)
3. Choose policy type: Decreasing term (cheapest) or level term (more flexible)
4. Pay fixed premiums: Monthly payments stay the same for the entire term
5. Payout if needed: If you die during the term, your family receives the payout tax-free to pay off the mortgage

Policy options:

• Single or joint cover (joint covers both partners for one premium)
• Written in trust (bypasses probate, avoids inheritance tax)
• Terminal illness cover (usually included as standard)
• Critical illness add-on (extra cover if diagnosed with serious illness)

Decreasing vs level term life insurance for mortgages

Decreasing vs Level Term for Mortgages

Feature	Decreasing Term	Level Term
Payout	Reduces annually	Stays the same
Cost	30-50% cheaper	More expensive
Best for	Repayment mortgages	Interest-only mortgages
Flexibility	Mortgage only	Cover other costs too
Typical use	Pure mortgage protection	Mortgage + living costs

Both provide tax-free payouts and fixed premiums.

Decreasing term (also called decreasing life insurance):

• Payout reduces by 6-8% annually to match repayment mortgage balance
• Cheapest option for mortgage protection
• Perfect if you only need to cover the mortgage
• Not suitable for interest-only mortgages (balance doesn't decrease)

Level term (also called level term life insurance):

• Payout stays the same throughout the term
• Essential for interest-only mortgages
• Provides extra funds for living costs, childcare, debts
• More flexible if you want additional protection

Example costs for £200,000 mortgage over 25 years:

- Decreasing term (30-year-old): £7-10/month

- Level term (30-year-old): £15-20/month

How much does mortgage life insurance cost?

Mortgage life insurance typically costs £6-£30 per month depending on your mortgage size, age, and health.

Example monthly costs:

£150,000 mortgage, 25-year term:

- Age 30: £6-8/month (decreasing) or £12-15/month (level)

- Age 40: £10-13/month (decreasing) or £18-22/month (level)

£250,000 mortgage, 25-year term:

- Age 30: £9-12/month (decreasing) or £18-22/month (level)

- Age 40: £15-19/month (decreasing) or £28-35/month (level)

Factors affecting cost:

• Mortgage balance (higher balance = higher premium)
• Your age (younger = cheaper)
• Smoking status (non-smokers pay 50% less)
• Health and medical history
• Policy type (decreasing cheaper than level)
• Term length (longer term = higher premium)
• Single vs joint cover (joint is 20-30% cheaper than two separate policies)

Lender policies vs independent: Mortgage life insurance sold by your lender typically costs 30-50% more than independent policies and can't move with you if you remortgage. Always compare independent quotes.