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Life Insurance Vs Mortgage Cover

LifeSearch author Sophie Cussons
5 min read

by Sophie Cussons, Marketing Executive

See author bio

Sophie began as a Protection Adviser at LifeSearch in 2017, and now brings her experience to Protection Content.See author bio

Guide last reviewed 10 Oct 2023

The Difference Between Life Insurance And Mortgage Protection Cover 

What is life insurance? 

It’s the catch-all name for a group of products, which pay out financial sums at major life moments such as death, sickness, illness and, in some cases, redundancy and unemployment.  The best-known life insurance product is life insurance itself, which pays a tax-free lump sum to the surviving family, or other named beneficiaries, when the policyholder dies.  That lump sum can be used for any purpose, from covering general living costs to paying off a mortgage. 

Life insurance products can cover individuals, couples, family members and even businesses. If you are the policyholder, the monthly cost of your policy (your premiums) is calculated based on the scope of your cover and your risk. Your risk is determined by your health, habits, employment and lifestyle.  

For more, see our guide to life insurance. And why not check out our life insurance home page.

Does life insurance cover my mortgage? 

Yes and no. Yes, because life insurance policies tend to align with the specifics of a mortgage. If you buy a £250,000 house with a 25-year mortgage, it makes sense to buy life insurance that covers you for this much, for this long. That way if you die tomorrow, or at any time during the next 25 years, your mortgage can be cleared.  

No, because there’s no obligation to have a life insurance payout cover a mortgage. Your family or beneficiaries receive their lump sum and they can spend it as they like.  

It’s important to understand, however, that the Mortgage Protection payout sum decreases in line with your mortgage term and balance, whereas level term life insurance will pay out the same lump sum at any time during the policy length.  

You can read more about mortgage protection insurance on this page, or get deeper into the detail on our mortgage protection insurance page. 

What are the pros and cons of life insurance cover? 

The pros:

  • It’s a financial cushion for your loved ones should the worst happen 
  • It means life can go on at a practical level after you’re gone 
  •  Your big expenses and debts don’t have to be absorbed by others 

The cons: 

  • Most life insurance products have a term limit; and are commonly 20-25 years but could be anything up to 50 years or more (dependant on your age and the insurer). If you don’t die in that time, your policy will expire.  You might see that as you not getting your payout. But on the other hand, you’ll be alive so …

  • It’s not like paying for Netflix. You don’t see an obvious or upfront return for what you buy. The sum you spend on life insurance every month doesn’t pay back until you’re no longer here. (But your loved ones might appreciate it) 

What is mortgage protection insurance? 

Should you die before your house is paid off, mortgage protection insurance means the outstanding amount left can be paid. After you’re gone, your loved ones don’t have to worry about missing repayments or being unable to afford living in their home. 

There are two main varieties of mortgage protection insurance, level term and decreasing term. It’s always best to get advice to determine the policy that best speaks to your needs, budget and circumstances. 

Level term life insurance policies  

This policy covers you for the full amount (say £250,000) for the duration of your term (say 25 years). You’re covered for £250,000 on day one, the same way you’re covered for £250,000 in year 24. Your premium payments stay the same throughout, unless your plan is linked with inflation, or you make changes to your policy.  

Obviously, the amount repayable on your mortgage reduces over time so if you die in year 24, there might be just £3,000 outstanding on your mortgage. Your loved ones can spend the remaining £247,000 however they like.  

Decreasing term life insurance 

This policy tightly aligns with your mortgage. In fact, when people say “mortgage protection life insurance” they tend to mean this one.  

With this policy, your cover amount decreases over time to reflect the shrinking sum total you owe on your mortgage. You might start your policy covered for £250,000, but by year 10 your policy might cover £150,000, because that’s what your mortgage is then worth.  

Decreasing term life insurance is a little cheaper than level term life insurance. To see if you could save money with decreasing term life insurance, request a callback from a LifeSearch expert today. 

For more information click here or visit our mortgage protection insurance home page. 

Does mortgage protection cover death? 

Yes it does. The point of mortgage protection is to cover the cost of your mortgage if you’re not around to pay it. If you die, your mortgage can be taken care of so any family or loved ones you leave behind don’t have to absorb what’s probably your biggest overhead. 

What are the main benefits of mortgage protection cover?

  •  You can rest easy that if something happens to you your mortgage will be paid. 

  • Your loved ones won’t have to absorb the burden of what’s probably your biggest overhead.

  • If you have a family, your death doesn’t need to risk your family losing their home. . 

Do I need life insurance and mortgage protection? 

Life insurance and mortgage protection can be almost one in the same. A level term policy (see above) covers your mortgage first and foremost, but it’s ultimately a life insurance policy. The lump sum payout goes to your loved ones, and they may choose not to clear the mortgage with it.

Do I need life insurance once my mortgage is paid off? 

It depends if you still want to leave money for loved ones when you die. If your mortgage is clear, you’re largely debt-free, and have no financial dependents, life insurance or illness cover may feel unnecessary.  

Still, to fully shield your loved ones from any extra expense, you can look into policies designed to cover funeral costs and / or to leave cash, typically smaller sums, to help those you love to get ahead in life. 

If you’re mortgage free, and heading into retirement age territory, it’s worth looking getting advice. Critical illness cover could be relevant, as could over 50s cover.  

What's the cost of life insurance and mortgage protection?

It depends on the value of your mortgage, your age, your health, family size, lifestyle, hobbies and circumstances in general. While there are too many variables to be precise in answering this question, you can find some generic examples on our life insurance and mortgage protection pages.

How to pick the right insurance cover for you

To choose life insurance cover that best fits your needs, goals, situation and lifestyle, you could do a whole lot of research and reading, or you could get advice from an expert, who’s job it is to know the market and protect people properly.  

Whether you want to go it alone, or you plan to get advice at some point, here’s a tool to help you with things to think about and how much cover you might need.

Life insurance exists to protect you. And no two people are the same. The best policy for you depends on where you are, what’s going on at home, your health, your plans, your needs and your budget.  

Understand the differences between the types of life insurance policies and what's right for you

An expert adviser from LifeSearch can answer your questions, explain how the policies available work, and provide fee-free quotes so you know your options.

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LifeSearch author Sophie Cussons
Sophie Cussons Marketing Executive
Sophie began as a Protection Adviser at LifeSearch in 2017, helping customers to Protect the lives they love. She now brings her experience to Protection Content within the Marketing team. Sophie’s a passionate Street Dance teacher in her spare time, and teaches children and adults all the right moves.
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