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What is mortgage life insurance?
Mortgage life insurance covers the cost of mortgage payments for your dependants if you – or your partner if you take out joint life insurance – pass away. You can take out either decreasing or level term life insurance – level term is the most common, but if the pay-out is intended for your mortgage then decreasing could be the better option.
The pay-out for decreasing life insurance goes down over the duration of your cover, usually in line with your mortgage balance, and the terms of both generally match up. This means your policy effectively covers your mortgage payments if you pass away before paying the sum off.
A level term policy ensures the pay-out remains the same regardless of when you pass away. This can be useful as the pay-out will cover your remaining mortgage balance after your death, and might also provide a little extra to ease the financial burden on your dependants.
*According to MoneySuperMarket data collected October 2019
Do I need life insurance to cover my mortgage?
Mortgage life insurance can be useful if you have dependants, perhaps your family, living in the home you bought with the mortgage. As mortgages are major financial commitments, if you die and your family falls behind on payments, they could end up with their home repossessed.
However, with mortgage life insurance you can ensure that your family is able to keep up with the repayments and live in the home.
It may not be necessary if you don’t have any dependants, or anyone else living in your home, as no-one else will need to continue making the mortgage repayments.
How much cover do I need for my mortgage life insurance policy?
The average amount of cover taken out for a decreasing term single life insurance policy is £150,000, according to MoneySuperMarket data* - however the amount you’ll need will depend on your own circumstances. When you decide how much cover to take out on your policy, consider the following:
Your mortgage term
Probably your biggest expenditure, the
length of your mortgage will have a big
influence on the cover you need
Income replacement
It's also worth thinking about daily
living costs if you make a major
contribution to the household's total income
Childcare and education
You should also account for the cost of
childcare and education if you have minor
dependents
Other debts
You might also consider other debts you
or your family would struggle to pay
without your or your partner’s income
*According to MoneySuperMarket data collected October 2019
The average monthly cost of life insurance
Should I get joint or single life insurance?
If you’re in a partnership with someone else, you may want to think about a joint life insurance policy. They can be useful in certain situations, for example if you’re married with no children or other dependants. These policies usually only pay out once, when the first policy holder passes away – which would then go to the surviving partner to pay off the remaining mortgage balance.
Joint policies can also sometimes work out as cheaper than two single policies, as well as being less hassle as you only have to deal with one set of paperwork. However if you have dependants, it may be worth taking out two single policies – so you get two pay-outs for the extra premiums you’ll probably pay. You can read more about the pros and cons of single vs joint life insurance here.
*According to data collected by MoneySuperMarket, accurate as of October 2019
How much does mortgage life insurance cost?
The cost of life insurance to cover your mortgage depends on a number of factors, including:
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Your age
As you get older the risk of falling ill increases, so your premiums will go up too – which is why it’s better to take out cover when you’re young
Your occupation
Certain occupations carry a higher risk, so you might face higher premiums if you work as a commercial driver, as a pilot, from heights or in an industry involving explosives
Your general health
Adding critical illness cover to your life insurance will increase your premiums, as there are more risk factors that could lead to a claim
Your lifestyle
If you’ve smoked in the year before you take out cover, you’ll also likely pay more – on average people who had used nicotine in the last 12 months paid over £5 a month more than those who hadn't*
*According to MoneySuperMarket data collected October 2019
Should I get critical illness cover with my mortgage life insurance policy?
Many life insurance providers offer the option of adding critical illness cover, which is designed to pay out if you are suffering with a serious condition or critical illness. It can be a useful part of mortgage life insurance as it will ensure you can keep paying your mortgage if you are unable to work due to illness.
Critical illnesses include cancer, a stroke or heart attack, but policies vary. However, the type of critical illness cover you choose will affect how the policy pays out:
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Additional critical illness cover
offers two pay-outs - one if you become critically ill, and another when you pass away
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Combined critical illness cover
only offers one pay-out, either if you become ill or when you pass away. MoneySuperMarket doesn't offer combined critical illness cover and life insurance, but we do offer a variety of other life insurance products to suit your needs
*According to data collected by MoneySuperMarket, accurate as of October 2019
Am I eligible for mortgage life insurance?
In most cases if you’re over 18 and a UK resident you should be eligible, but some insurers may also have an upper age limit.
Can I get mortgage life insurance from my mortgage provider?
Your mortgage provider may offer decreasing term life insurance as part of your mortgage deal, but you should always shop around for quotes to ensure you get cover for the best price.
Will mortgage life insurance affect my mortgage interest rates?
It shouldn’t, but you should check the interest rate on your mortgage doesn’t become higher than the rate applied to your life insurance policy – you should remember to adjust your cover amount if you make any changes to your mortgage terms.
Can I put my life insurance policy in trust?
You can generally put your life insurance policy in trust, so your beneficiaries don’t have to pay inheritance tax on the pay-out.
Can I change my policy?
It can differ between insurers, but you should be able to make the following changes to your policy:
- Change the length of the policy term
- Change the amount of cover
- Add or remove someone from the policy – you may be able to separate a joint life policy in the event of a divorce, the dissolution of a civil partnership or a new mortgage term
- Switch between annual and monthly payments
Keep in mind that making changes to your policy can result in an increase or decrease to your premiums.
Can I cancel my life insurance policy?
You should be able to cancel your life insurance policy, or as mentioned above remove yourself from a joint policy, but you should check if there is a cancellation fee involved. You won’t get the premiums you have already paid back.
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