5 min Read
31 Oct 2016

Do I need mortgage life insurance?

Do I need mortgage life insurance?Do I need mortgage life insurance?

If you own a house, or an apartment, the payment on your mortgage is probably your largest monthly outgoing. Imagine what would happen if you or your partner died. The mortgage would still have to be paid so that you and your family could keep a roof over your heads. Continuing to pay the mortgage on just one (or no) income would be a struggle so it would make sense to take out mortgage life insurance for the amount of your mortgage so that your mortgage is cleared in the event of death.

How does mortgage life insurance work?

Mortgage life insurance is a decreasing term insurance policy where the sum assured decreases in line with the outstanding repayment mortgage debt. Although the level of cover reduces, the premiums remain level throughout the term. By having a reducing sum assured it allows the insurer to reduce the premiums making a mortgage life insurance policy very cost effective.

When taking out a mortgage life insurance it important that the term of the policy is the same as the term of your repayment mortgage. This will ensure that the cover would always be enough to cover the outstanding mortgage.

Are there any other life insurance policies that can be used to cover a mortgage?

An alternative to mortgage life insurance is a level term assurance policy. The sum assured on a level term insurance policy remains the same throughout the term of the policy instead of reducing over time. The premiums for this type of policy are more expensive than for a mortgage life insurance policy and are more suited to covering an interest only mortgage.

Can I use a mortgage life insurance policy to cover an interest only mortgage?

An interest only mortgage is a mortgage where the monthly mortgage payments only cover the interest on the loan. With this type of mortgage the outstanding loan remains the same throughout the term. With mortgage life insurance cover reducing over the term it would not be a suitable policy for an interest only mortgage. You would be better off taking out a level life insurance policy where the sum assured matched the level of your mortgage debt.

Can I take out a joint mortgage life insurance policy?

If you have a partner then it would make sense to insure both lives on a joint mortgage life insurance policy. This type of policy would pay out in the event of the first death during the term of the policy. Before taking out a joint mortgage life insurance policy check out the premiums for two single policies as this might be a more economical option and provide double the life cover.

What will happen to my mortgage life insurance policy if I move house?

If you move house then your mortgage life insurance policy can cover your new mortgage. However, if you increase the mortgage amount or extend the term of the mortgage then your policy will have to be reviewed to fully cover the new mortgage and remaining term. Any increase in the sum assured or the term of the policy will have to be underwritten by the insurance company and the cost of cover may increase due to age or current health.

Does the cost of mortgage life insurance differ from company to company?

Every insurance company will assess the risk of insuring someones life according their own statistics on life expectancy, so premiums for mortgage life insurance may differ across various insurance companies. Also, insurance companies may offer different features on their policies resulting in different premiums to their competitors.

How can I find the best mortgage life insurance policy for my circumstances?

I recommend that in the first instance you get a mortgage life insurance quote. The process is very simple and you will be dealing with a company we have personally vetted to provide you with the best quote for your circumstances.

Get an instant mortgage life insurance quote

Get an instant mortgage life insurance quote in seconds, comparing the whole market

Find the best value mortgage life insurance policy

(image by Filomena Scalise / FreeDigitalPhotos.net)

Article overview

Key points

  • Mortgage life insurance is a decreasing term insurance policy where the sum assured decreases in line with the outstanding repayment mortgage debt.
  • An alternative to mortgage life insurance is a level term assurance policy.
    • The sum assured on a level term insurance policy remains the same throughout the term of the policy instead of reducing over time.
  • Mortgage life insurance cover reduces over the term so it would not be a suitable policy for an interest only mortgage.
  • If you move house then your mortgage life insurance policy can cover your new mortgage.
  • I recommend that in the first instance you get a mortgage life insurance quote.

Written by Liam

Over 30 years experience in financial services, residential lettings and property sales. Director of a leading national estate agency chain, until leaving in 2008 to pursue other commercial interests. Vast experience in new business development, business change, management development and business strategy.

More about Liam