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Life insurance vs mortgage life insurance

What's the difference between life insurance and mortgage life insurance?

Find out if mortgage life insurance or standard life insurance is suited to your financial needs.

By Kevin Pratt

Published: 09 July 2020

Looking for life insurance?

Mortgage life insurance is also called decreasing-term life insurance. It is designed to clear the outstanding home loan if you die within the term of your mortgage. 

Mortgage life insurance works by buying the policy for a specific period of time – or ‘the term’. The policy should typically be worth the same value as your mortgage, but the value of the policy falls as the debt is paid off. Should you pass away during the term of the policy, your dependants will have enough money to clear the mortgage, so the home remains secure.

Level-term life insurance lets you pick how much you want the insurance to pay out and how long you want it to last for. Your loved ones will get the full pay-out if you pass away within the term of the policy, and this could then be used to clear a mortgage alongside any other debts or provisions for your dependants’ future financial security.

Is mortgage life insurance cheaper than level-term insurance?

Mortgage life insurance is typically cheaper than level-term life insurance – where the amount of cover is constant throughout the policy. This is because the size of the pay-out from a mortgage life insurance policy decreases over the term of the policy, in line with the continuing reduction in your mortgage debt.

Based on data from life insurance policies sold on MoneySuperMarket, the average monthly premium per £100,000 of cover for a mortgage life insurance policy over 25 years was £5.45 - £3 cheaper than that for a level-term policy at £8.52.*

The difference between level-term and mortgage life insurance

Based on life insurance policies sold on MoneySuperMarket between May 2019 and April 2020 with an average monthly value of a single-person policy per £100,000 of cover over 25 years.

Is mortgage life insurance right for me?

Mortgage life insurance could be an option if both you and your partner would be earning enough to cover standard household bills and there are no other dependants.

To use an example, say you and your partner each earn £30,000, have a repayment mortgage of £150,000, but no children. Your partner could struggle to pay the mortgage without your salary but could manage other living expenses. Mortgage life insurance might therefore be a suitable option because it would ensure your partner could keep the roof over his or her head.

But if your partner was taking a career break to look after young children, or earned only a small income, you might be better off with level-term insurance. You could then not only leave enough money to pay off the mortgage, but also make provisions for your family’s financial security.

Level-term insurance is also the better option if you have an interest-only mortgage because you pay off only the interest each month, so the capital debt remains the same.

Using MoneySuperMarket’s life insurance calculator will help you decide how much cover you need in a few easy steps.

Standard life insuranceMortgage life insuranceUnder 2525 to 3435 to 4445 to 5455 to 64£0£5£10£15£20£25£30£35Age groupAverage monthly premium

Average monthly premium for single person, life-only policies per £100,000 of cover. Based on data for life insurance policies sold on MoneySuperMarket between May 2019 and April 2020. 

What are the pros and cons of mortgage life insurance?

While mortgage life insurance is typically cheaper than level-term life insurance, it’s worth weighing up whether it’s the best option for your family after you pass away.

Some good reasons to get a decreasing-term policy are:

  • Mortgage life insurance is usually cheaper than level-term insurance
  • The pay-out will clear any outstanding mortgage debt if you die within the term, allowing your loved ones to remain in the family home.

But the drawbacks to decreasing-term life insurance include:

  • Mortgage life insurance will provide only enough cover to clear the outstanding mortgage debt. It does not pay off any other debts or make provision for your family’s future financial security
  • It is not suitable if you have an interest-only mortgage, as you still need to pay the full capital sum back at the end of the mortgage term.

How to buy life insurance

Many mortgage lenders insist you take out appropriate life insurance when you arrange your mortgage.

It’s important to remember that you do not have to buy cover from your lender, and it’s often cheaper elsewhere. You should also compare quotes for both level-term and decreasing-term life insurance, as you could buy more cover for little or no extra cost.

Finding the right life insurance policy is easy when you compare quotes with MoneySuperMarket. Just tell us a little about yourself, your circumstances and the cover you need and we’ll put together a list of quotes tailored to your requirements.

You’ll be able to compare deals by the overall cost and the cover you’ll get, and once you’ve found the one you want just click through to the provider to finalise your purchase. As with all insurance products, the cheapest option may not be the best – we recommend balancing cost and cover to ensure you have the right policy.

*Based on data of life insurance policies sold on MoneySuperMarket between 1 May 2019 and 30 April 2020. Average monthly value of a single person policy per £100,000 of cover over 25 years.

Looking for life insurance?