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Mortgage life insurance

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What's mortgage life insurance?

Mortgage insurance (also known as decreasing term) offers a payout that decreases over time. It can be used to cover outstanding debts, for example your mortgage, if you die before they're paid off. It means your partner and/or dependants aren’t burdened with having to meet the mortgage repayments without your financial support.

What’s the difference between mortgage life insurance and level term life insurance?

Mortgage life insurance is specifically designed to cover outstanding debts if you die. Because the amount you owe on your mortgage decreases with time, the pay out amount usually decreases in line with this too.

Level term life insurance is different. It pays out a fixed cash lump sum to your beneficiaries if you die at any point in the policy term. The pay out doesn't decrease.

Which do I need?

It depends on your circumstances. Often, people choose to get decreasing term life insurance alongside level term insurance. That way, any outstanding debt on the mortgage is covered and additional money is available as a pay out to support loved ones too.

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Where should I buy mortgage cover?

You can buy mortgage life insurance from your mortgage provider, estate agent or you can buy it direct from an insurer for yourself. When you buy a house, they'll ask you about it. However, the person selling you the policy will get a commission for each one sold.  You’ll probably be able to find a more cost-effective and suitable product by shopping around and comparing your options first. 

Don’t pay for cover you don't need

You might not need mortgage life insurance if you already have another life insurance policy in place that offers a sufficient payout to clear your mortgage debt. For example, your employer might offer death in service cover, and that's enough to cover your outstanding debts.

That been said, it's possible to have multiple life insurance policies - and in some circumstances this might be the right option. For example, if you want to make sure your mortgage is paid off and you want to leave a lump sum for your beneficiaries.

Pros and cons of decreasing life insurance

Pros

  • Monthly premiums are often lower for decreasing term insurance than with other types of life cover. This is because the amount of money an insurance provider needs to cover you for reduces over the course of a policy
  • This means it's a good option if you have a repayment mortgage or if you have children. The amount of payout you’d need them to receive – if you or your partner were to die unexpectedly – might reduce as they grow up and become more self-sufficient

Cons

  • Decreasing term life insurance won't work for you if you have an interest-only mortgage. This is because the money you originally borrowed (the capital debt) is only repaid at the end of the mortgage term
  • You should consider that, as time passes, any claim on a decreasing life insurance policy will be worth less. Make sure the payout amount doesn't decrease faster than your outstanding mortgage debt because of inflation too

Mortgage life insurance isn’t compulsory

If you die with outstanding debt on your mortgage, it’ll be paid off from your estate if you don’t have insurance to cover it. So if you haven’t got dependants, or your estate has enough money to cover the cost, you might not need mortgage life insurance.

Compare life insurance the easy way

We can help you find the right life insurance for you at the right price, so your family aren't left with payments they can't afford

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Alternatives to decreasing term life insurance

The various types of protection policy on offer can have similar, confusing names, but if you know the level of cover that you need, we can help you find the right policy.

Joint mortgage life insurance

With joint mortgage life insurance, if one partner dies, the other will get a pay out.

It's usually cheaper than two people holding separate policies. That's because the cover ends after the first death - there's no payout if the second policyholder dies.

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Level term cover

A level term life policy would pay out the same amount, no matter when you died during the cover period.

You set the amount of cover yourself, but if you die after the term ends, you won't receive a payout.

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Whole of life cover

Also known as 'life assurance', whole of life cover does what it says on the tin - it covers you for life and pays out whenever you die. There isn't a specified term.

Some policies require you to keep paying premiums until you die, while others only ask that you pay until a certain age.

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Other ways to protect your income

Mortgage payment protection insurance (MPPI)

MPPI is a form of income protection that pays your monthly repayments if you’re unable to work due to accident sickness or redundancy.

Some income protection policies can offer a death benefit but products like that aren't typically designed to pay off your full mortgage debt with one lump sum.

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Income protection

This type of policy is designed to pay out if you are unable to work due to an accident or illness, or if you're made redundant.

There are both long and short-term policies available, however the payout will only cover a certain percentage of your wages.

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Family income benefit

This cover can be used to help your beneficiaries cover the cost of your income.

The main difference between family income benefit and standard life insurance is that it normally pays out monthly, rather than a lump sum.

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Switching mortgage life insurance provider

It's worth comparing your options – switching providers could be to your advantage, but you also need to be careful. Life insurance is more expensive for older people or those with health conditions, so you’ll have to pay more if you're looking to arrange cover later in life. 

For that reason, it's more common to keep your existing life insurance policy in place, and buy additional cover if your circumstances change.

If you need help working out what cover you need, speak to our partner Assured Futures[¥] for fee-free, impartial advice. Just call 0800 808 6907.

Frequently asked questions

  • Can I get critical illness cover with decreasing-term life insurance?

    Yes, it's possible to add critical illness cover to all types of life insurance, including decreasing term policies. But your premiums will rise to reflect this extra level of insurance.

  • How can I find cheap decreasing term life insurance?

    By comparing various providers and policies, until you find cover that suits your circumstances. Don't just pick the policy that offers the cheapest premiums though - make sure it'll actually cover what you need it to.

Guides to life insurance

[1]For comparing quotes online, Gocompare.com introduces customers to theidol.com. For help, guidance and advice, Gocompare.com, introduces customers to Assured Futures Limited. Assured Futures Limited is authorised and regulated by the Financial Conduct Authority no. 176392

[2]Your cover will depend on your individual needs, circumstances and the premium you choose to pay

[¥]Assured Futures' office hours are 8:30am-7pm Monday to Thursday, 8:30am-5pm on Friday and 8.30am-midday on Saturday. If you request a call-back, calls made to you by Assured Futures are completely free of charge. If you decide to call Assured Futures, calls from mobiles and landlines are free of charge. Your call may be monitored or recorded for training and security purposes

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