What is mortgage life insurance?
Mortgage life insurance can be used to help your dependants pay off your mortgage if you die. This type of life insurance is often sold as a decreasing-term policy so, as you gradually pay off your mortgage, your pay-out reduces over time. A mortgage life insurance claim typically pays out as a lump sum.
It’s designed to protect your loved ones if you die before your mortgage has been paid off. It will provide them with a lump sum so they can clear the mortgage debt and have one less financial burden at an already difficult time.
How does mortgage life insurance work?
As you pay off your mortgage over time, the amount of life cover you would get if the worst were to happen reduces – just as the outstanding balance of your mortgage does. This type of life cover is usually paired with a repayment mortgage, where monthly payments are used to repay the amount borrowed as well as any interest still owing.
What’s the best mortgage life insurance cover?
The best mortgage life insurance cover will depend on you and your individual circumstances. For example, if you’re slightly older or have a pre-existing medical condition, you might have to pay more for your policy. If you’re younger with no medical problems, you could get the same cover at a cheaper price.
How much cover do I need for a mortgage life insurance policy?
You need to make sure that your mortgage life insurance policy covers the amount on your mortgage. Because of this, the amount of cover will be different for everyone. These types of life insurance policies are commonly on a decreasing term, which means that the potential pay-out will go down in line with your outstanding mortgage. Make sure you get enough cover to pay off your mortgage from the start and match your policy to go down in value alongside your mortgage repayments.
It’s important to remember that if you move home or change the length of time your policy runs for, you’ll need to ensure you have adequate cover in place. Otherwise, you could end up with one of the following:
- a pay-out that isn’t enough to cover your mortgage
- overpaying for cover that you don’t need
- a policy that lasts longer than your mortgage
How much does mortgage life insurance cost?
The amount that you pay for this type of life insurance may depend on:
- your age
- your health and medical history
- mortgage amount owed
- your salary
- the level of cover you want
You’ll often find that a mortgage life insurance policy will cost less overall than, say, a level term life insurance policy, where you might pay more to guarantee a pay-out that is fixed for the whole policy life.
The best way to get an idea of how much you could expect to pay – and whether or not your dependants will get a lump sum after you die – is by doing a quick comparison with us, and telling us some simple things about you and the level of cover you need.
You should work out how much cover you need and for how long. Ask yourself what the outstanding balance on your mortgage is and how many years are left before you pay it off. Then simply answer a few personal questions about yourself and we’ll provide you with a range of quotes for life insurance from our panel of providers.
Do I need life insurance for a mortgage?
You don’t have to take out life insurance for a mortgage; it’s not a legal requirement. But some providers will want you to have a policy in place as a condition of their mortgage offer.
It’s quite common to take out a mortgage life insurance policy at the time of your mortgage, so it can easily be viewed as a small extension to your standard payments.
A mortgage life insurance policy is designed for peace of mind so that, should the worst happen, your family’s future in your home is secured. If you don’t have dependents, you may decide it’s not necessary.
What else should I consider?
You might want to consider level term life insurance if you want to cover more than just your mortgage. For example:
- daily living costs to help your family cope financially
- childcare and education costs
- if you have other debts, such as a loan or credit cards, which your family would struggle to pay
Level term life insurance might also be more suitable if you have an interest-only mortgage. This is because the rate remains the same and won’t go down over the years.