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Mortgage Life Insurance: What You Need to Know

Posted 4/01/2024 by Alex Moore
Family on couch

Taking out a mortgage to buy a home is an exciting big step to be taking that naturally will get you thinking about the future. We find that a lot of people grow concerned over what could happen if they were to sadly pass away before their mortgage is fully repaid.

The idea of the financial burden falling on your loved ones while they adjust to your passing is unpleasant to say the least, so this is where mortgage life insurance policies come in.

Mortgage life insurance is a type of life insurance that covers the cost of your mortgage if you were to pass away. That means the remainder of your mortgage would be paid off, significantly reducing the financial load on your loved ones.

Do I need mortgage life insurance?

Mortgage life insurance is not a legal requirement to get a mortgage, but some lenders may include life insurance as a requirement for taking a mortgage with them.

It’s very common for people to take out life insurance with their mortgage as an additional expense on top of their monthly mortgage payments.

It’s a way to rest assured that your mortgage will be covered no matter what happens.

With mortgage life insurance, if you were to pass away your loved ones won’t have to worry about making your payments for you and that they’ll still have a home after you’re gone.

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

Most of the time mortgage life insurance is sold as a ‘decreasing term’ policy. This kind of policy is designed for paying off your remaining debts exactly.

Therefore, the amount that would be paid out decreases in line with the amount you owe decreases.

The alternative ‘level term’ mortgage life insurance offers a fixed amount of cover for a fixed period. That means the amount your policy would payout remains the same for the agreed period.

So, as the amount you owe on your mortgage decreases, the amount that would be paid out stays the same, leaving extra cash.

A decreasing term mortgage life insurance policy is usually more affordable as the amount it pays out decreases over time. It also means that your policy is specifically tailored to your mortgage policy.

On the other hand, it means that your loved ones won’t receive any cash themselves from your mortgage life insurance policy.

Level term mortgage life insurance on the other hand means that your loved ones will receive extra cash on top of covering the remainder of your mortgage. That’s because the payout does not change, it remains at a fixed level for a fixed period.

That means the more you’ve already paid off your mortgage, the more your loved ones will receive on top of having the remainder of your mortgage covered.

That money can go on bills, groceries, etc… to help them through the transitionary period after you’re gone.

Are there alternatives to mortgage life insurance?

You don’t have to get mortgage life insurance to help protect your ability to repay your mortgage in an unfortunate situation. Alternatives are:

  • Critical illness insurance
    • Critical illness insurance provides a lump sum towards your mortgage if you’re diagnosed with a critical illness. That way if you were to receive such bad news you can focus on what matters the most in life, rather than thinking about your mortgage repayments. Before taking out this type of insurance, check what your lender’s definition of ‘critical’ illness is.
  • Income protection
    • Income protection provides security that a fixed amount or a percentage of your earnings will continue to be available should you suddenly have to stop working due to an unexpected illness or injury. Note that income protection insurance usually comes with a deferred period – meaning you’ll have to wait from the first day you can’t work through to when you’re eligible for a benefit payment to receive a payout from your policy.

You aren’t limited to one policy. You could even take out these policies on top of life insurance to know you’re completely covered.


Taking the next big step in your property journey with a mortgage is very exciting, but it’s still a huge decision to make so it’s important that you prepare for the worst just in case. Life insurance provides a convenient way to ensure your loved ones are protected if something were to happen to you before your mortgage is fully repaid.

Everyone’s requirements will be different, so if you’d like to talk through your options with a trusted advisor, click here to book an appointment.

Find out more


Your initial mortgage appointment is without obligation. Embrace Financial Services normally charge a fee for their services; however, it is payable only on the submission of your mortgage application. The fee will depend on your circumstances but the standard fee is £549. Complex cases usually attract a higher fee. Embrace Financial Services will discuss and agree the fee with you prior to submitting any mortgage application.

Please be aware that the information provided within these archives has been pre-published, as of the date published on each article. The information contained within, including references to taxation, legislation, regulation, or any other issues or concerns may no longer apply.

Alex Moore

Reeds Rains E-marketing Executive

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