Do you need Life Insurance to get a mortgage? | moneyfacts.co.uk

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nigel woollsey

Nigel Woollsey

Online Writer
Published: 31/07/2019

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At a glance

  • Life insurance for your mortgage is not compulsory – but it is highly recommended for most people.
  • Mortgage providers can insist you have life insurance in place, but they cannot force you to have their insurance.
  • Mortgage life insurance is designed to pay off the remainder of your mortgage should you die before you reach the end of your term.
  • Cost will depend on your level of cover, defined benefits, your age and medical history.

Buying your first home is an exciting and daunting experience. There seem to be so many things you need to remember (and pay for!) that it’s easy to get lost on what you really need and what is just a ‘nice to have’. Life insurance for mortgages is just one area where the inexperienced may feel unsure. To help, we’ve put together this quick guide on understanding your mortgage life insurance needs.

What is life insurance for mortgages?

Life insurance is a way of financially protecting your loved ones in the event of your death. However, there is a vast selection of life insurances available – some which simply cover the cost of a funeral and others that are designed to support your family financially should the worst happen.

Life insurance for mortgages is just that: an insurance policy that pays off the remainder of your mortgage in the event of your death. While life insurance for mortgages is not compulsory, it is strongly recommended for most people. Some mortgage lenders will actually insist you have this in place before you move in, while others will not. 

Why do I need life insurance for my mortgage?

For nearly everyone, buying a home is the single biggest financial commitment you will make. At the start of your mortgage, you will owe your mortgage lender for anything up to 100% of the purchase price for your home – most likely amounting to tens or hundreds of thousands of pounds.

With capital and interest mortgages, each month you pay off a little of your mortgage until, at the end of your mortgage term, you have repaid the lender and now own the property outright. However, what happens if you die before you pay off your mortgage? If you have a joint mortgage and die without life insurance in place to cover your mortgage then, the bank will look to your surviving mortgage partner to repay the remainder of the debt. This might be a problem say, if your surviving partner couldn’t afford the repayment on their own – forcing them to sell the house to pay off the debt.

Mortgage life insurance prevents this by paying off whatever remains of your mortgage debt if you die before the mortgage ends. With this in place, your loved ones are protected, and you can feel safe in the knowledge that your family will have one less thing to worry about.

Some life insurance policies will also pay off your mortgage debts while you are still alive if you are diagnosed with a terminal illness.

What type of mortgage life insurance do I need?

Single or joint – If you are buying a home on your own then you need only insure your life. However, since many people buy with a partner, it makes sense to have a joint life insurance policy that will repay the mortgage should anything happen to either of you.


Decreasing or level – With a repayment mortgage, as time passes, the amount you owe on your mortgage will decrease as you make repayments. Therefore, you won’t need as much cover as time progresses. A policy that takes this into account is called decreasing term life insurance – and is often cheaper than your other choice: level term assurance. The amount to be paid out for level term assurance does not go down in time but stays the same for the duration of your period of cover. Level term assurance is the correct type of cover if you have an interest only mortgage. Therefore, your family may also gain a lump sum depending on how much of your mortgage needs to be paid off. At the start of the policy this is likely to be minimal, but a pay-out after several years of repaying your mortgage could be much larger. This is a good choice if you have no other life insurances in place or want a lump sum for your family if the worst comes to the worst.

What is critical illness mortgage cover?

Some life insurance policies also offer something called, ‘critical illness’ cover. This is an additional benefit that pays you a tax-free lump sum some should you fall ill with a defined critical illness, such as cancer, a heart attack or a stroke. It’s likely you may also be covered for a range of other serious illnesses too, but these can vary from provider to provider. This type of policy is useful if, for example, your family would struggle without your earnings if you fell ill and were unable to work.

Where can I buy my mortgage life insurance?

As with so many things, it’s important to shop around and find the right cover and price for you. Some mortgage brokers or other intermediaries may well offer to arrange insurances for you but you may find a better deal by using comparison websites or seeing an independent financial adviser.

Featured life insurance providers

  • Protect your family even after you’ve gone with Post Office Life Insurance. It's quick and easy to set up and it needn’t be expensive.

    • Leave behind up to £750,000 – depending on age.
    • £50 Gift Card as a Thank You when you buy your life insurance policy. T&Cs apply.*
    • First month’s cover on us. Start paying for your life insurance after the first month.
    • Flexible policy - choose Level, Decreasing or Increasing cover to suit your lifestyle and budget.
    • Terminal Illness Cover included.
    • Policy holders get free access to our Health and Wellbeing Services (includes 24/7 GP advice by phone/video, dedicated nurse, mental health support, symptom checker, nutrition and diet advice, private prescription delivery, physiotherapy triaging, specialist referrals, eldercare).
    • Pay more each month to add Critical Illness Cover or Children’s Cover to your policy.
    • Simple online application - get a quick quote online in just a few minutes.
    • Covered from day 1 (except if death results from self-inflicted injury in the first year).
    • No medical needed - just a few health and lifestyle questions.
    • Mortgage Guarantee if you choose Decreasing option - if when making a successful claim, the benefit amount is less than the amount of your outstanding mortgage, the amount outstanding on the mortgage will be taken care of. T&Cs apply

    *T&Cs here.

  • Help protect your loved ones with an Aviva Life Insurance Plan from just £5 a month

    Rated 5 Stars by Defaqto and Money Marketing’s Best Protection Provider 2021.

    • Here to protect your loved ones, 99.3% of life insurance claims paid in 2020
    • Access to an annual health check, worth over £80 a year, at no extra cost through Aviva DigiCare+
    • Get a quote in minutes
    • 10% discount for existing customers

    The Aviva Life Insurance Plan pays out if you die in the policy term. There is no cash-in value. The policy only pays out once, when we’ve paid a claim, the policy will end. Alternatively, we will pay out if, during the policy term you're diagnosed with a terminal illness (that meets our policy definition) and you’re not expected to live longer than 12 months. The plan is available to UK residents between 18 and 77.

    • LifeSearch are one of the UK’s leading and biggest life insurance brokers.
    • Protecting over 1 million people since ’98, they have access to major UK insurers.
    • LifeSearch offer fee-free advice and no obligation quotes on, life insurance, critical illness insurance, income protection and other protection products.
    • Life insurance from £5 per month*
    • Critical Illness Cover and Income Protection from £10 per month*
    • Expert advisers who know their stuff
    • A wide range of leading UK insurers compared
    • Exclusive LifeSearch Care & Claims Service
    • Rated 4.9/5 on Trustpilot from over 18,000 reviews

    *Supporting information available here.

    • Anorak is an independent online broker for life insurance, income protection and critical illness cover
    • Anorak helps you buy life insurance, income protection and critical illness cover
    • Anorak is a simple, convenient way to get expert advice and buy the right cover online
    • Anorak provides expert, unbiased advice online, and also has a team of advisers who can help over the phone
    • Anorak helps you get the right cover in place to protect your family financially 
    • Anorak is authorised and regulated by the Financial Conduct Authority (FCA)
    • Saga over 50’s Health Insurance provides you with fast access to diagnosis and treatment
    • Talk to a doctor any time of day, from anywhere in the world, 365 days a year with Saga
    • A full range of health plans that can be personalised to suit you – giving options to reduce your premium
    • Over 30 years of experience.
    • New customres ger the first two months of Saga Health Insurance policy free, T&Cs apply.
Note

Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. Moneyfacts.co.uk will receive a small payment either if you click the links or if you use their services after you click through to their site. All information is subject is subject to change without notice. Please check all terms before making any decisions.

Disclaimer

The list of life insurance providers on this page is a selection of services available and gives you an idea of the kind of options available. You can find out more about the individual products by visiting any of the providers listed. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts.co.uk will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts.co.uk recommends you obtain independent financial advice.

Do I have to take out life insurance through my mortgage provider?

No. You are perfectly within your rights to go elsewhere. Again, going with a mortgage provider’s policy often means paying more than you need to. However, your provider has the right to demand that you have the appropriate life insurance in place before the mortgage starts.

How much will my mortgage life insurance cost?

How much you pay each month depends very much on:

  • The type of policy you choose and it’s defined benefits
  • Your age
  • Your medical history and lifestyle.

Should I speak to a mortgage broker?

Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.

 

Speak to a mortgage broker today

 

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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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