Mortgage life insurance
Save £100s on your cover
Should you pass away before your mortgage is fully settled, your family might face the burden of continuing the payments or could be compelled to sell the house to clear the debt with the lender. This guide will explain what mortgage life insurance is, the key considerations to keep in mind, and the steps to purchase a policy—remember, it’s not mandatory to obtain it through your mortgage lender.
Who’s this guide for? For those seeking insurance that covers their mortgage in the event of their death, consider a policy that pays out an amount decreasing over time. However, if you prefer life insurance that provides a fixed lump sum, irrespective of your mortgage balance, check out options in Life insurance.
What is mortgage life insurance?
Mortgage life insurance, commonly known as mortgage protection or decreasing term insurance, is a specific type of coverage that provides a payout if you pass away before your mortgage is fully paid off.
The primary purpose of this insurance is to relieve your loved ones from the financial burden of making monthly mortgage payments or potentially selling the home to settle the outstanding balance.
This policy is designed to align with your mortgage balance; therefore, the coverage amount decreases as your mortgage debt diminishes. However, it’s important to note that if you take a break from mortgage payments, the payout might not cover the full mortgage balance.
Typically, mortgage life insurance is more affordable than level-term life insurance. However, if your goal is to leave a lump sum for your beneficiaries to manage other debts and expenses, a level-term life insurance policy may be more suitable, although having both types of coverage is also an option. For more details, check out our guide on level-term life insurance.
Alternative types of life cover
This guide delves into mortgage life insurance, but before proceeding, be sure to explore these four alternative types of coverage to determine if they might be a better fit for your needs.
- Level term – where the payout is fixed for the length of the policy
In essence, this type of insurance policy offers a predetermined payout if you pass away while it remains active. Its primary goal is to provide financial assistance to your beneficiaries, ensuring that the absence of your income does not lead to financial difficulties.
The ‘level term’ life insurance is the most straightforward form, and its title clearly conveys its characteristics:
- Level: When you initiate a policy, you specify the amount you would like it to pay out, such as £200,000. This payout remains constant—referred to as ‘level’—throughout the life of the policy.
- Term: You also select the number of years you want the policy to be effective, for instance, 25 years. Typically, coverage cannot extend beyond the age of 80, although this age limit can differ among insurance providers.
Generally, the higher the coverage amount and the longer the term, the more expensive the policy will be. Payments are made through a monthly premium that continues until either the policy pays out (if you die within the term) or the term concludes.
- Family income benefit (FIB) – provides a regular income, rather than a lump sum
This offers a yearly tax-exempt payment throughout the duration of the policy, such as £10,000 annually for ten years. If you were to pass away five years after taking out the policy, your beneficiaries would receive £10,000 for each of the remaining five years.
As a result, the payout amount decreases over time, making these policies generally more affordable than level term options.
- Over-50s’ life insurance – guaranteed acceptance but it’s much more expensive
Insurance companies determine whether they will accept your application and the premium amount based on various factors, such as your age and health status. However, an option for those over 50 is a policy that guarantees acceptance until the age of 80 or 85.
These policies, though, tend to be significantly pricier, have restrictions that prevent claims in the first one or two years, and may result in payouts that are less than the total premiums paid. For comprehensive details and important warnings, please refer to our guide on Over-50s’ life insurance.
- Whole-of-life insurance – usually to cover inheritance tax
These are primarily investment-linked life insurance policies, though not exclusively, designed mainly to help reduce inheritance tax liability. Essentially, the payout is intended to cover the inheritance tax due upon death, with the policy terminating at the time of death rather than after a predetermined duration. As a result, they tend to be a costly choice.
Should I get mortgage life insurance?
Every parent, partner, or anyone responsible for dependents should take this into account. If someone depends on your income and would face difficulties in your absence, a life insurance policy can be an affordable way to provide them with financial support when you’re no longer there.
However, having life insurance isn’t mandatory, so it’s essential to evaluate whether the monthly premium is justified for your situation. To assist in your decision-making, here are some important factors to consider:
- If you don’t have dependants, you don’t need life insurance.
If you don’t have anyone in mind for your money, it’s not worth pursuing. Similarly, if you have dependents but your passing wouldn’t significantly affect their finances, you may not require a policy. However, if your absence would make it difficult to cover expenses like bills, mortgage payments, childcare, and groceries, life insurance can be an affordable solution to ease those burdens.
- Check if you’ve any cover with your employer – though don’t just rely on that.
If you have a job, you may have access to complimentary ‘death-in-service’ insurance. This benefit typically provides a payout of around four times your salary while you remain employed with the company.
It’s important to note that the death does not need to happen on the job or be work-related. However, relying solely on this coverage is generally not advisable. If you switch jobs or face redundancy, your new employer may not provide this benefit. Additionally, if you encounter any serious health issues during that time, securing your own life insurance could become costly. If you determine that you need life insurance, it’s wise to purchase it sooner rather than later, as premiums tend to increase with age. Although the coverage duration may be longer, younger individuals typically enjoy lower premiums, resulting in overall savings.
- If you’ve already got a life insurance policy, it’s likely you’re already covered.
While you might not have ‘mortgage insurance’, having a level-term life insurance policy can provide your dependents with a lump sum payment in the event of your death. If they plan to use this payout to settle the mortgage, it’s crucial that the coverage amount is greater than your outstanding mortgage balance. Additionally, make sure that the policy remains active for the entire duration of your mortgage term.
Mortgage life insurance need-to-knows
If you believe mortgage life insurance suits your needs, here are some essential points to consider before choosing a new policy.
1 – Opt for ‘guaranteed premiums’ as this means the monthly cost is fixed
When purchasing mortgage term cover, you typically encounter two options for your monthly premium payments: guaranteed or reviewable.
With guaranteed premiums, the cost remains fixed throughout the policy’s duration, providing you with certainty about your financial commitment. In contrast, reviewable premiums may initially appear more affordable, but the insurer retains the right to increase prices in the future. This means that what starts as a budget-friendly option could become more expensive as time goes on.
2 – Disclose all health conditions and risks when you apply or your insurer may not pay out
Being transparent and truthful with the information you share is crucial to ensure that any policy you set up meets your specific needs and provides adequate coverage for your dependents in the event of a claim.
When obtaining a policy quote, you will likely need to provide details such as your age, smoking status, occupation, and medical history. Insurers use this information to assess your eligibility for coverage and determine the premium.
If you’re comparing quotes through a discount broker, you’ll typically start by answering a few basic questions to receive initial pricing. However, once you proceed to apply with the insurer, you will need to provide more detailed information, which could influence both the price and the decision regarding your coverage.
Since each insurer has different policies regarding pre-existing medical conditions, it’s advisable to seek guidance if you have a complex medical history. Brokers can be particularly helpful in identifying which insurers are likely to cover your specific conditions and offer the most favorable rates.
If you’re over 50, you can get a policy with guaranteed acceptance – but it’s much more expensive
If you’re 50 years old or older and prefer not to reveal any health conditions, an over-50 policy may be a suitable option for you. This type of policy guarantees acceptance up to the age of 80 or 85 without requiring health-related questions. However, these policies tend to be significantly more costly, and there may be restrictions on claiming benefits during the initial one or two years. Additionally, there’s a possibility that you could receive less in payouts than what you’ve contributed.
For full information and warnings, see our Over-50s’ life insurance guide.
3 – A joint policy for a couple only pays out when the first person dies – two single policies can be better
Mortgage life insurance can be obtained in two forms: a single policy covering just you or a joint policy that includes both you and your partner.
While a joint policy is typically more affordable, it only offers one payout, which occurs upon the death of the first policyholder, after which the coverage ends. This type of policy is most beneficial if your partner is your sole dependent and you wouldn’t need a second payout for anyone else.
However, if you were to separate from your partner while having a joint policy, you would have to secure a new single policy. This could end up being more costly since it would be influenced by your age and health at the time of application.
On the other hand, purchasing two separate single policies tends to be pricier, but it provides two payouts if both individuals pass away within the policy term. Additionally, this option offers individual coverage, ensuring that your insurance remains valid regardless of your relationship status with your partner.
4 – Write your policy ‘in trust’ and the money can’t be claimed by the taxman
When a mortgage life insurance policy is active at the time of your death, its payout becomes part of your estate, potentially subjecting it to significant inheritance tax. However, you can often circumvent this issue by placing the policy in trust when you first acquire it.
By writing the policy in trust, the insurance benefits go directly to your beneficiaries, keeping them out of your estate. This approach not only helps avoid inheritance tax but can also expedite the payment process.
Most insurance policies offer an option to write them in trust at no additional cost, making it relatively straightforward. However, it’s important to note that various types of trusts exist, and altering or canceling them can be complicated—even if all beneficiaries agree. Therefore, it’s essential to carefully consider who will receive the payout.
If you have the necessary knowledge, you can establish the trust for the policy on your own. If you’re unsure, it’s advisable to consult a reputable advisory broker or refer to our guide on independent financial advisers.
5 – You can ditch and switch to save (eg, if you’ve quit smoking or remortgaged and owe less) but savings aren’t always possible
Life insurance tends to increase in cost as you grow older, which can make saving a challenge. If you’re older or have developed health issues since obtaining your current policy, new coverage may come with a higher price tag. However, obtaining a quote can still be beneficial, particularly if any of the following situations apply:
– If you obtained your policy directly from your mortgage lender and your health situation hasn’t significantly changed, there’s a good chance you could save money by exploring other options. If you secured your policy through your mortgage lender or didn’t compare multiple quotes beforehand, it might be worth looking into new quotes. This way, you can confirm whether you can save money (just ensure that the coverage remains equivalent). If you find a better deal, simply establish the new coverage and, once it’s active, cancel your current policy.
– If you’ve stopped smoking or left a high-risk job, you’re in a better position. Non-smokers typically pay significantly lower rates than smokers, as their risk of dying during the policy term is much lower. To qualify as a non-smoker, you generally need to be completely free of nicotine for at least one year, and sometimes up to five years, so it’s essential to verify the specifics.
A year after you quit, consider obtaining a new insurance quote to see if you could achieve substantial savings. However, don’t be tempted to provide false information. If you pass away and it’s found out that you were a smoker, it could render the policy void. If you’re genuinely committed to quitting, it’s wise to have this documented in your medical records to support any future claims.
– If you’ve remortgaged or moved to a different property and your health status remains largely the same, you might find that you no longer require as much insurance coverage. For instance, if you initially secured a policy to protect a £200,000 mortgage but have since relocated, made a lump sum payment, or refinanced, you may now owe significantly less than anticipated. In this case, obtaining a new policy that aligns with your current mortgage balance could be more affordable while still fulfilling your requirements. Additionally, this new coverage will likely be for a shorter duration, further reducing costs.
6 – You’re protected if your insurer goes bust
Various events can unfold throughout the duration of the policy. Although your broker or mortgage insurance provider may currently be performing well, the situation could change significantly in 20 years. Here’s how this may impact you:
– If your insurer went bust. In the event that your insurance provider becomes insolvent, the Financial Services Compensation Scheme (FSCS) will attempt to locate another insurer to either assume your existing policy or provide a replacement. Furthermore, if you have any active claims or require coverage for claims prior to the appointment of a new insurer, the FSCS will ensure that you remain protected.
– If your broker went bust. Typically, the only cost you might incur when working with a broker is the fee for setting up the policy, which is usually capped at around £25.
If your broker were to go bankrupt after you’ve paid the fee but before your insurance was finalized, the likelihood of recovering that fee is quite low.
While the Financial Services Compensation Scheme (FSCS) can assist with any premiums lost due to a broker’s insolvency—since these payments are protected—this protection generally does not cover broker fees.
How to slash the cost of mortgage life insurance quotes
Securing a mortgage life insurance or decreasing life policy from your mortgage lender can impact your finances over the life of the policy. These policies are frequently overpriced, and you are not required to accept them—mortgage life coverage is distinct from your mortgage contract and lender. Always keep this in mind…
Never blindly go with a policy from your bank or direct from an insurer, as these are expensive ways to buy.
It’s advisable to obtain quotes from multiple providers. However, unlike other types of insurance—like auto or homeowners insurance—the lowest prices aren’t typically found on conventional comparison websites. Generally, you’ll discover the most affordable quotes by consulting a broker.
The following table illustrates the significant variations in pricing for the same coverage level based on the purchasing source; in fact, some options may end up costing you nearly twice as much.
How mortgage life insurance costs differ depending how you buy
| Guaranteed prices over a 25-year term with £200,000 benefit (1) | ||
| Provider |
Monthly |
Total cost |
| Discount broker (non-advised route) |
£3.70 |
£1,110 |
| Discount broker (with advice) |
£5.16 |
£1,548 |
| Typical comparison site (2) |
£6.29 |
£1,887 |
| Typical direct bank (2) |
£7.07 |
£2,121 |
| Typical direct insurer (2) |
£7.32 |
£2,196 |
Prices correct as of March 2023. (1) Prices based on 30-year-old non-smoker. (2) When you purchase online, with no advice
The most affordable method to obtain mortgage life insurance is through a broker. However, it’s essential to determine if you require guidance on selecting a policy, as the least expensive option might not necessarily be the most suitable for your needs. Thus, you should consider these two choices (the links provided will direct you to the top brokers in each category)…
- Non-advised route – typically ideal for those who have a clear understanding of their needs, do not require detailed policy explanations, and are seeking the lowest possible price.
- Advised route – suitable for individuals who are uncertain about the type of policy they require, have pre-existing medical conditions, or prefer to consult with a professional for guidance.
Cheapest ‘non-advised’ discount brokers – best if you know exactly which policy you want
If you’re knowledgeable about life insurance, using a specialist discount broker can be an excellent option. This method is the most cost-effective for purchasing life insurance, but it does require you to have a clear understanding of the type of policy you want.
Typically, you can obtain a policy through these brokers for a fee of £25. They pass on all the commissions they receive from the insurer back to you, effectively giving you a discount—hence the term “discount broker.” Although there is an upfront fee, this approach can save you £1,000s over the duration of the policy.
Here are some of the brokers we’ve identified as the most affordable, with positive reviews. We recommend exploring as many options as your schedule allows.
Important. Before purchasing from any of these companies, it’s important to clarify whether you’re receiving ‘advice’ or merely ‘information.’ If you’re being advised, they are required to conduct a comprehensive assessment of your financial and medical situation as well as your insurance requirements before recommending policies, which may result in higher costs.
Cheapest ‘advised’ brokers – if you need help choosing
During our evaluation of various brokers, we found that there wasn’t a single provider that consistently offered the lowest premiums. Therefore, we recommend obtaining quotes from as many of these companies as your schedule allows. The brokers are listed alphabetically, but don’t interpret this as a specific order for contacting them; our findings indicated that different brokers could provide the best rates depending on the situation.
Some brokers do provide vouchers or cashback offers. While it’s important to take these into account in your calculations, they shouldn’t be the sole deciding factor. For instance, if a broker with a voucher quotes you a premium that is only £1 more per month than a comparable policy from another provider, over a 25-year period, you’d end up paying an additional £300 for that policy, which isn’t worth it for a £100 voucher.
Additionally, consider the three brokers mentioned in the ‘non-advised’ section above. Although they typically offer advised policies, the decision may not solely hinge on cost. You might prefer one broker’s approach over another’s, so it’s important to consider the quality of service they provide as well.
Struggling to find cover?
If you’re having difficulty locating coverage and the companies mentioned earlier couldn’t assist you, or if you prefer to connect with a local provider, visit the British Insurance Brokers Association website and utilize their ‘Find insurance’ feature. Be sure to choose ‘Life insurance’ when prompted about the type of insurance you’re seeking.
How to complain about your insurance provider
The insurance sector often struggles with a negative perception regarding its customer service. Additionally, while some individuals may have a positive experience with a provider, others can find it incredibly frustrating.
Frequent issues include delays in claim payments or outright denials, hidden fees, and exclusions buried in fine print. It’s advisable to reach out to your provider directly first, but if that doesn’t yield results, you have options…
Consider utilizing the free complaint tool Resolver. This resource assists you in organizing your complaint, and if the company is unresponsive, it can help you escalate the matter to the complimentary Financial Ombudsman Service.