Life Insurance to Cover Mortgage Costs

Getting life insurance because you are getting a mortgage is not the law, but getting life insurance to help cover your mortgage should the worst happen, is a great idea.

Life Insurance to Cover Mortgage Costs

Mortgages have long been a wonderful way for people to be able to own their own homes. However, they often represent well over half of your monthly bills and are a huge financial liability which often relies on two household incomes to pay it off. 🏠

In contrast, being mortgage-free, from life insurance, can be a huge financial relief as it drastically cuts your monthly outgoings and completely removes the possibility of having your home repossessed. 💷

What is mortgage life insurance?

This is why when it comes to life insurance, covering the mortgage becomes very appealing. It’s best to figure out how much cover you need before jumping into a policy.

Mortgage life insurance is used specifically to pay off your mortgage if you were to pass away prematurely and before your mortgage is paid off. There are a few different cover options so let’s take a look. 🤓

Should I get mortgage life insurance?

You can get any type of life insurance to cover your mortgage. However, decreasing term life cover is a great option if you're looking to specifically help your loved ones and family pay off the mortgage if you were pass away.

Mortgage insurance is very personal

Insurance is always a very personal decision, based on factors such as how much cover you want, how much you can spend per month as well as your age and health status among other things. So purchasing mortgage life insurance shouldn't be any different. It's personal to your individual circumstances and will be based on how much your mortgage payments are and when you would like to pay it off by.

How does mortgage life insurance work?

Looking to find out how mortgage life insurance works? It is not rocket science, but can take a little bit of research and reading.

Below are two of the most common options when it comes to types of mortgage cover.

Decreasing term life cover

Decreasing life insurance is perhaps the most common type of insurance related to paying off debts, such as a mortgage. This is where your cover will simply pay out whatever is remaining as they should decrease at the same rate. Part of the reason it’s so common is that it’s often the cheapest form of life cover as well.

It’s paid out over a fixed period of time and the money you receive will decrease over the term of the policy. So this type of cover keeps your monthly premiums really low and can be a great option to cover a debt (such as a mortgage payments). At Bequest, the premiums decrease at a rate of 8% per year, so check with your mortgage provider that it also reduces at the same or faster rate as this cover to make sure it continues to cover your mortgage until the term is up.

Level term life insurance

Level term life insurance is where you pick the size of the payout you would like your family to receive and the length of time that you would like to be covered for.

As the amount of money you receive won’t decrease, the premiums you pay are likely going to be higher. Many people are happy to pay this as they know that a large fixed sum will be given, regardless of if or when you pass away over the course of the term. Your loved ones would be able to pay off the mortgage and have money left over to pay for anything else they deem helpful. 👏

Don’t pay twice for mortgage life insurance

Before diving 💧 into any life cover for your mortgage, it’s a good idea to check whether you are already going to be covered. Some mortgage companies may include this in your initial application when you buy the property. It could be, however, that cover is not enough and you want to have separate life insurance, unconnected from your mortgage.

If you’re in the process of obtaining a mortgage then it can be tempting to just go with what you’re given from your mortgage lender. But a better option is to shop around to see if there is another or better life insurance policy solution out there which may be cheaper or provide you with more cover. 🛒

How much mortgage life cover do I need?

This is very dependent on if you get decreasing life insurance or not. If you do, a little math might be needed to make sure that your mortgage life insurance policy payments lines up with your repayment mortgage costs.

At Bequest, our decreasing term life insurance cover decreases at a rate of 8%. This means that making sure your repayment mortgage rates line up with this so they would both finish around the same time. 👌

What's covered in mortgage life insurance?

Death

You will be covered if you pass away before the end of your policy term.

Terminal illness

If you're diagnosed and expected to pass away within 12 months, you are able to get your policy beforehand.

Suicide

This is determined by the insurer you have and the policies they have in place, suicide clauses and all. Most insurers only pay out in the event of suicide after the policyholder has had the policy for 12 months.

At Bequest, we do not have a suicide clause and will pay out at any point.

Critical illness cover

If you have critical illness cover included in your policy, you will be paid out if you are diagnosed with one of the specified illnesses.

Critical illness cover will not pay out if the illness you are diagnosed with is not on the list.

A lump-sum payment

Your one time payment will be paid out if and when you pass away in during your policy term.

Mortgage life insurance policy need-to-knows 👍

Mortgage life insurance cover isn't for everyone, but if you think it might be right for you, here are some need-to-knows that could help you decide.

Look for 'guaranteed premiums' so your monthly cost is fixed

When you get 'guaranteed premiums' it means how much you pay does not change throughout your policy, or you know how much it will be. This is how term life insurance policies work, such as level or decreasing term life cover with us at Bequest.

There is another option with some companies, you can get a reviewable policy where it could change during your term based on how much risk your insurer believes you are. It could be a little less money to start off with, however it is harder to budget for.

You must be honest and share all health conditions and risks when you apply or your insurer may not pay out

If you aren't honest, your insurer has the ability to decline your life insurance policy. This means that being upfront will make sure that your loved ones receive the payout that you want them to.

Insurers have a very high payout rate, 98% to be exact. So when you're honest, you are more likely to get your payout if you pass away during your term.

A joint life insurance policy for a couple only has one payout - two single policies could be better

This is key - it might be better if you and your spouse have separate life policies. With two separate life policies, you not only receive two separate payouts but your policy keeps going if your spouse passes or if there is a split.

To learn more about this, read our article “Why Everyone Should Have Single Life Insurance Policies”.

Write your policy 'in trust' and your loved ones will receive more

When you write a decreasing mortgage life insurance policy, or any term policy for that matter, into a trust, this helps you avoid tax and your beneficiaries would receive a lot more of your life insurance money. If you're looking for more information about this, feel free to email our partner James at JPEP.

You can possibly cancel and switch to save money

A mortgage life insurance cost is dependent on a few things. Such as how much your mortgage costs, how long you want to pay into a life insurance policy, as well as the insurer you're with, your age, health habits and family health.

If you have quit smoking, for example, then your monthly premiums could be much less money. It could be helpful to take out a new policy or look at a new insurer. At Bequest, just let us know and we can help you make changes to your policy. 👏

You're protected if your insurer goes under

No matter what happens to your insurer, there will always be a payout. 💯 With mortgage life insurance there are normally two options if one goes bust.

  • The policy will be replaced by a new insurer, so customers have continued cover.
  • Policyholders could receive a refund based on the cost of the premium of their policy.

This is really great to know, because when you are looking after your family, you want to make sure that they will be taken care of if your insurer has failed.

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

Mortgage life insurance

A mortgage life insurance policy usually means that it is decreasing term cover. This type of life insurance decreases over the length of your policy at a rate determined by them.

Level term life insurance

Level term life cover means that the amount of monthly premiums and the payout stays the same through the predetermined term length.

Look for flexibility when getting life insurance for a mortgage

Life can change often and it’s a great idea to look for a policy that is able to adapt to your life. This could perhaps be if you are obtaining another mortgage, having a child or are no longer responsible for a house. You don't have to get life insurance to cover a mortgage, but it is a great idea.

Our life insurance policies allow for change in lifestyle and we would love to help answer any questions you may have. To start, feel free to read our Life Insurance FAQs for more information.

FAQs

Can you use life insurance to pay off mortgage?

Yes, you can use life insurance to pay for your mortgage. Mortgage life insurance policies are used specifically for that, whereas other types of life insurance can be used for a mortgage as well as other debts and household bills, whatever the beneficiaries feel is helpful.

Can I get insurance to cover my mortgage?

You can get various types of life insurance to cover your mortgage. However, mortgage life insurance is usually called decreasing life cover.

Can you get a home loan without life insurance?

It is not compulsory that you get a life insurance policy with your home loan, however, it is a great idea and some lenders may make it more of a precondition than others.

Do you need life insurance when you buy a house?

It is not legal that you purchase a life insurance policy when purchasing a home. However, it is definitely recommended and most mortgage brokers will do their best to sell you on a mortgage life insurance policy when working with them.

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FF Bequest Limited, trading as Bequest, is authorised and regulated by the Financial Conduct Authority with firm reference number 923791. You can check our authorisation on the FCA Financial Services Register by visiting the following website: register.fca.org.uk . We are registered in England and Wales, Registered office address: Founders Factory, Northcliffe House, London, United Kingdom, W8 5EH. Company Number 12367897.

Regulated by the Information Commissioner's Office (ICO) [ZA662891]. "Bequest" is trademark protected by FF Bequest Limited (UK00003452648). FF Bequest Limited is registered in England and Wales, No 12367897.

0203 916 5433

FF Bequest Limited, trading as Bequest, is authorised and regulated by the Financial Conduct Authority with firm reference number 923791. You can check our authorisation on the FCA Financial Services Register by visiting the following website: register.fca.org.uk . We are registered in England and Wales, Registered office address: Founders Factory, Northcliffe House, London, United Kingdom, W8 5EH. Company Number 12367897.

Regulated by the Information Commissioner's Office (ICO) [ZA662891]. "Bequest" is trademark protected by FF Bequest Limited (UK00003452648). FF Bequest Limited is registered in England and Wales, No 12367897.

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