Do I need life insurance for a mortgage?
A mortgage is one of the main reasons many people choose to get life insurance. It provides a safety net if you die leaving behind financial dependents who will need to cover the mortgage payments.
Key takeaways
Life insurance can provide financial security for your loved ones if you pass away while still having a mortgage balance
You can choose a fixed term policy, which pays out a fixed amount, or a decreasing term policy, where the sum of money decreases over time
Life insurance can help pay off your mortgage if you die so your family can stay in the home
Life insurance ensures that your loved ones are protected if you were to die before your mortgage is paid off, but is it a legal requirement and which type of life insurance should you choose?
Is life insurance mandatory for a mortgage?
No, life insurance is not a legal requirement for getting a mortgage but some lenders may make it a condition of the loan.
Many mortgage providers strongly recommend having life insurance, particularly for certain types of mortgages or for borrowers with higher financial risk.
Why should you get life insurance if you have a mortgage?
People opt for life insurance for a mortgage for a variety of reasons, including the following:
Financial protection
If you own your own home, having a life insurance policy means if you were to die, there would be money available to clear the mortgage balance.
A lender requires it
In some cases, lenders may ask you to take out mortgage life insurance before a mortgage is approved.
Peace of mind
Having life insurance ensures that a family's housing security and financial protection are in place after the policyholder's death.
What type of life insurance should you consider when you have a mortgage?
There are two main life insurance options that cover a mortgage: decreasing and level term life insurance:
Decreasing term
This type of life insurance is specifically designed to protect a repayment mortgage.
The amount of money paid out decreases over time, just as the mortgage balance does, ensuring that your loved ones will have enough to cover any remaining mortgage repayments if you pass away during your policy term.
Level term
Level term life insurance allows you to choose a payout amount and term, offering a lump sum payout if the policyholder dies within the specified term.
For example, it may pay out £200,000 if you die within a 20-year term. This payout can clear a mortgage and provide for other debts or future financial needs of dependents.
How do I estimate how much cover I need for my mortgage?
Figuring out how much life insurance cover you need for your mortgage involves a few key steps:
Start with your outstanding mortgage balance
Look at your current mortgage statement. The goal is to ensure the policy could pay off the entire remaining balance if you were to die before it’s repaid. For example, if you owe £200,000, that’s your baseline cover.
Consider the mortgage term
If your mortgage is being paid off gradually (like with a repayment mortgage), the balance decreases over time.
Some people choose decreasing term life insurance, which mirrors the falling mortgage balance, so the cover reduces each year.
Alternatively, a level term policy keeps the same payout throughout the term, which can offer extra protection.
Factor in other financial commitments
Think beyond the mortgage itself:
Outstanding debts (credit cards, personal loans)
Funeral costs and other final expenses
Income replacement for dependents (so they can maintain their lifestyle)
Adding these to your mortgage gives a more complete picture of how much cover you might need.
Decide on term length
Most people match the policy term to their mortgage term. For example, if your mortgage ends in 25 years, you’d typically choose a 25-year term policy.
Use an online calculator
Many UK insurers provide mortgage protection calculators. You input your mortgage balance, term, age, and income, and they give an estimate of the cover you might need.
Rule of thumb: At minimum, life insurance should cover your outstanding mortgage balance. But adding extra for other debts and income protection can give real peace of mind for your family.
Our Life Insurance calculator is a simple tool that can help you determine the amount of cover you need across your policy term to protect you and your loved ones. You can also choose to add critical illness cover to your policy for extra cover.
What are the alternatives to mortgage life insurance?
If you don’t have life insurance in place, and you were to die leaving a mortgage balance, this money would need to be paid by your partner (if you have one) or someone else you have named on your mortgage.
If this isn’t possible, the house may have to be sold.
Life insurance isn’t the only option here though, the following should all be considered too:
Savings
You could put money away each month into a savings account paying interest and this could be used to clear the mortgage balance.
Overpaying your mortgage
If possible, you may be able to overpay your mortgage to reduce the overall amount left to pay.
Selling other assets
If you have another other assets in your estate, such as investments or property, these could be sold to pay off the mortgage debt.
What do I need to apply for mortgage life insurance?
When applying for this type of life insurance, you'll need to provide details about your age, health, medical history, the level of cover you're seeking, and the term length. Insurers use this information to assess risk and calculate premiums.
Compare tailored life insurance quotes
It's crucial to compare multiple quotes to ensure you're getting a good deal. Mortgage providers or estate agents may not always offer the best rates due to commissions.
We compare quotes from a wide range of UK providers, offering tailored life insurance policies to protect your mortgage.
Frequently asked questions
Do you need life insurance with an interest-only mortgage?
Yes, life insurance is recommended if you have an interest-only mortgage. This type of mortgage is typically the most substantial debt one leaves behind, as you're only paying off interest, not the capital.
Life insurance comes into play by ensuring that this debt does not become a burden to your loved ones. The policy can pay off the outstanding mortgage balance, providing relief during a difficult time.
Do I need life insurance if I don’t have a mortgage?
Yes, you should still consider life insurance, even if you don't have a mortgage. Life insurance isn't exclusive to homeowners. It's for anyone who wants to ensure their loved ones are financially supported after they die.
Benefits of life insurance include financial support for dependents, income replacement, coverage for funeral costs, debt clearance, and providing funds for education or everyday living expenses.
Critical illness insurance can also contribute towards lost earnings if you're alive and unwell.
Do I need life insurance if I have no dependents?
You may not need life insurance if you have no dependents and no significant debts, but it can still be useful for covering costs like a mortgage, funeral costs, or potential inheritance tax liabilities.
It can also provide a financial safety net for a loved one, even if they are not financially dependent, by ensuring debts are covered and they don't have to sell assets to pay them.
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Collette Shackleton
Content Writer
Collette Shackleton is a highly skilled Content Writer who has over nine years’ experience creating helpful and engaging personal finance content for consumers. Collette shares her experience as a...
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Rebecca Goodman
Personal Finance & Insurance Expert
Rebecca is an award-winning financial journalist with over a decade of experience writing for print and online media. Her mission is to take the jargon out of personal finance and to help everyone...
