Mortgage life insurance
Last updated on
Mar 20, 2026 13:35
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The average mortgage is now north of £150,000, which is a hefty debt to take on unexpectedly.
If loved ones are depending on you to pay the mortgage, could they afford the payments if you died? Life insurance can help reduce the financial pressure on your loved ones and may help them keep their home, depending on the cover you choose.
There are different types of life insurance, including mortgage life insurance. Our guide covers what you need to know about insurance as a homeowner.
Life insurance pays out a lump sum to your loved ones if you die while the policy is active.
You pay a monthly fee (an insurance premium) for life cover. It’s not a legal requirement to have life insurance, but it’s definitely worth considering if loved ones who live in your home would struggle to pay the mortgage without your income. And some mortgage lenders require it.
Life cover pays out a tax-free lump sum if the person who holds the policy dies or is diagnosed with a terminal illness. If the policyholder has died, the money goes to their dependants.
Life insurance doesn’t cover you if you stop being able to work because of a serious illness. That’s covered by payment protection insurance (which pays out monthly) or critical illness insurance (which pays out a lump sum if you’re diagnosed with an illness named in the policy). You can have cover for illness alongside life cover, and there’s more in this guide below about covering monthly mortgage payments if you fall ill.
There are different types of life cover. Common ones are:
You can get joint cover: one policy which covers two people, which is usually you and your partner or spouse. It pays out once and is a common choice when people are taking out a joint mortgage to ensure the surviving partner can pay off the rest of the debt.
Premiums for life cover vary a lot. They can be as little as £5 a month, depending on the type and amount of the death benefit (payout) and the age, health and lifestyle of the policyholder.
If you’re young, don’t smoke and need basic cover, you’ll pay a lot less than a 60-year-old smoker looking to cover a large amount.
The average life insurance premium is around £30 a month, based on industry figures for 2024.
Younger, non-smokers with straightforward cover needs will usually pay less than older applicants or those with medical conditions.
If the policyholder dies, the payout normally forms part of their estate.
But you can put a life insurance policy “in trust”, which would protect the payout from being subject to inheritance tax. This means that you’re transferring ownership of the policy to the trustees, and ensures the payout goes to the people you choose.
It’s common to do this, and insurers can usually help to set it up when you take out a policy. But since trusts can be complex, it’s wise to get some financial or legal advice if you want to go down this route.
If you have a joint life insurance policy, the money goes to your surviving partner (the other policyholder).
If the policyholder is still alive but has a terminal illness covered by the policy, they'll get the payment themselves.
Payout amounts vary depending on the policy, the level of cover chosen and the insurer’s terms. The payout is based on the amount you chose to insure when you took out the policy.
There are several types of mortgage protection insurance - we’ve covered the main ones here. The first protects your monthly payments, paying out if you’re ill or lose your job. The second pays out if you die. Some people get both, for peace of mind.
MPPI can cover your monthly mortgage payments if you lose your job through no fault of your own, or you can’t work because of illness or injury. It typically pays out for up to one or two years.
MPPI can be useful if you’re self-employed and couldn’t keep up the mortgage payments if you fell sick. You might not need it if you’re employed and there’s a generous sick pay policy and a generous payment for redundancy.
You have to wait for a certain number of days - an “excess period” - before you can claim. This could be anything from a month to six months.
There are MPPI policies that cover:
Mortgage protection life insurance is a type of “term life insurance” and pays out if you die. The length of cover, or term, mirrors the period of your mortgage - 25 years, say.
That means the payout would cover the money still to be paid on the mortgage if you died before the end of the term.
Life insurance is designed to protect your family financially if you die, to cover all sorts of bills. With a standard life insurance policy, the amount of cover you have remains the same during the term of the policy.
Mortgage life insurance is specifically designed to pay off what you owe on your mortgage at the time of your death.
When people talk about mortgage life insurance, they usually mean the amount of the payout drops in line with what you owe on a repayment mortgage, where you’re paying off a bit of the capital each month.
Since the level of cover decreases, mortgage life insurance is typically cheaper than standard life insurance, where the cover level stays the same.
If you’ve decided you want to have mortgage life insurance, it’s a good idea to have it in place from at least when your mortgage starts. Allow yourself some time to find the right policy.
When you apply for cover to protect your mortgage, you’ll need to answer questions about your age, health, lifestyle and type and level of cover.
Shop around to find the best deal. You don’t have to get your mortgage life insurance policy from your mortgage provider.
Whether you’re buying a home or remortgaging, you can have a chat with Habito’s expert protection team for free to discuss your insurance options. We’ll search a range of insurers on our panel and, where appropriate, recommend suitable cover based on what you tell us. Our advice is free to you.
Important: Life insurance policies may not pay out in all circumstances. Exclusions, terms and conditions apply. You must keep up premium payments for cover to remain in place.
If you move or remortgage to borrow extra money, you’ll want to get life insurance that matches the new amount you’re borrowing.
The wording of life insurance policies differs between providers but many include a terminal illness benefit. This typically means the policy would pay out early if you get a diagnosis from a doctor that you have less than a year to live.
It’s not a legal requirement to have mortgage life insurance. But it is a good idea to have it in place when your mortgage is active if your dependants are relying on you to pay the mortgage and there’s nothing else that would cover the debt if you died.
With a joint mortgage, your lender might require you to have life insurance cover, either jointly or separately.
Mortgage life insurance is about giving you and your loved ones peace of mind.
It’s worth considering if:
You might not need life insurance if:
Check whether you have “death in service” benefits through your work as these typically pay out several times your salary if you die while you’re still working there. The amount may be enough to cover your mortgage.
And check you don’t already have life insurance that would cover what you owe for as long as the mortgage term.
We’ve set out the differences between mortgage payment protection insurance (MPPI) and mortgage life insurance to help you decide what could be right for you.
Availability, eligibility and exclusions vary by insurer and policy. Not all types of cover are suitable for everyone.
What back-up do you have that could cover mortgage payments for a while, if you fell ill or lost your job? If you don’t have any, then MPPI is worth considering.
If you have a good emergency savings fund to cover this sort of thing, or your work provides generous sick pay, then you might not need it. Equally, if your spouse or partner could cover the payments on their own for a while, then MPPI might not be right.
But if there’s no emergency fund or partner who could cover your share, and no sick pay or redundancy that could cover it, it’s worth considering.
Consider life insurance if you think the loved ones who live with you couldn’t pay the mortgage if you weren’t there.
If you’re getting life insurance to cover your mortgage, it’s wise to get it as soon as you’re on the hook for the mortgage. That’s once you’ve exchanged contracts (or the Scottish equivalent). At that point, you’re legally committed to buying the property.
Getting cover right from the start of your mortgage means that you’re covered when the debt is at its highest, before you’ve started paying it off. This gives your loved ones protection when they’d need it most.
Important: Life insurance policies may not pay out in all circumstances. Exclusions, terms and conditions apply. You must keep up premium payments for cover to remain in place.
See more on insurance & get protected
If your insurance matches the period of your mortgage, then the policy ends when you pay off the mortgage. If you pay off your mortgage early, the policy carries on for the rest of the term.
You can cancel your policy once the mortgage is paid off but you won’t be covered anymore and you won’t get anything back.
Life insurance and death in service benefits both provide a lump sum for your loved ones if you die. But there are crucial differences.
If you’re thinking of getting a mortgage, it’s a good idea to chat to an expert. At Habito, you can do this for free!
Your home may be repossessed if you do not keep up repayments on your mortgage.
Important things to know
Life insurance and mortgage protection policies have exclusions and limits. Whether a policy pays out depends on meeting its terms and conditions. Always check what is and isn’t covered before you apply.
No. There’s no legal requirement to have it, although some lenders insist on it, meaning you couldn’t borrow from them unless you had it. And if your loved ones couldn’t pay the mortgage if you died, it’s definitely worth considering.
With mortgage life insurance, you’re paying for peace of mind. That’s the peace of knowing your loved ones wouldn’t lose their home without you around to pay the mortgage
But if there’s already another way to pay off the mortgage or you don’t have any dependants, then mortgage life insurance might not be worth it.
If you get cover that lasts the length of your mortgage term - 25 years, say - your mortgage life insurance will pay out a lump sum to clear your mortgage debt if you die, as long as you’ve kept up your premiums.
Yes. Life insurance is not a legal requirement for a mortgage, although some lenders insist on it.
If you’re getting a mortgage and already have life cover, check the amount and the term are enough to cover your mortgage amount and term. You might find you need a higher amount of cover that lasts for a longer term. Chat with your provider to check the options and costs.
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