Life Insurance for a Mortgage: A Simple Guide for 2022

Life insurance for a mortgage is a great idea. Read more to learn why.

What is mortgage life insurance?

Mortgage life insurance pays out if you happen to pass away during your policy term, before your mortgage is paid for. Life insurance is meant to help your loved ones financially if you were to pass away so this is a great and specific use of mortgage life insurance. ๐Ÿ 

How does mortgage life insurance work?

Mortgage life insurance, typically known as decreasing term life insurance, is the most common and usually cheapest form of life cover. With decreasing term life insurance, you choose how much coverage you want and the length of term you are looking for. This normally lines up with your mortgage payments, including how much it is and how long it would take you to pay it off. Your monthly insurance payments stay consistent throughout your term, as the amount you're covered for decreases, along with your mortgage amount.

Decreasing life insurance is helpful when you are specifically looking to leave your dependents, a spouse, partner or children, with money to pay off the rest of the mortgage. At Bequest, we offer decreasing term insurance at a rate of 8%.

Another type of life insurance that can be used as mortgage insurance is level term. This tends to be more expensive than decreasing and has a lump sum payout if you pass away within the fixed term. Level insurance can be used to pay off a mortgage and other debts or financial needs that arise after a death.

Cover details

What's covered?

If you have decreasing term life insurance, this would cover your mortgage should you pass away during the term. ๐Ÿฅ€ The amount you borrow is fully repaid at the end of the term.

What's not covered?

Decreasing life insurance would not cover anything outside of the mortgage debt you are looking to pay off. It would not cover:

  • school tuition
  • loss of salary or income
  • child daycare payments
  • other financial debts or payments

What is Decreasing Life Insurance?

Decreasing term life insurance is a type of life cover that is mainly used to cover a mortgage.

It is most commonly the cheapest as the amount you have chosen to be covered for decreases as you pay off your mortgage. Your depends would have enough money to pay off the mortgage.

This works really well for a repayment mortgage because the amount is fully repaid at the end of the life insurance policy term.

How much cover do I need for a mortgage life insurance policy?

The amount of cover you need will be dependent on how much your mortgage is for and how long you are taking to pay it off.

Some math may be required to determine how much cover would be helpful to make sure your mortgage would be paid off should you pass away during the insurance term.

How much does mortgage life insurance cost?

The cost of life insurance for mortgage is dependent again on how much your mortgage is and how long you are planning to take when paying it off.

What determines the cost?

The cost is also determined by your age and health status. The younger you purchase life insurance, the cheaper it will be. The same thing goes for your health, the healthier you are, generally, the cheaper it will be. You can look around to compare life insurance and get various mortgage life insurance quotes to find the best fit for you.

Mortgage life insurance providers usually ask for monthly payments and you should find a monthly amount that fits for you.

Do I need life insurance for a mortgage?

A mortgage is a really great reason to purchase mortgage life insurance cover and buy life insurance in general. However, legally, you don't need life insurance when you take out a mortgage. And although it's not exactly necessary, it's a great reason to make this decision.

There are many life moments, good and bad, where life insurance is an incredible asset. These include getting pregnant, having children, getting married, getting divorced, receiving a job promotion and purchasing a home/getting a mortgage. ๐Ÿ‘

Mortgage life insurance at Bequest

At Bequest, we offer decreasing (sometimes known as a mortgage insurance policy) and level term life cover policies. One benefit of purchasing a level term policy, is that it can be updated and increased when these significant life changes happen. So you can start with a smaller amount of payout, but as your life changes, you can increase your payout and your life insurance policy changes with you.

We believe these are also great reasons to keep your will up to date. When significant changes happen, your will should stay up to date so the right people get what you have intended. ๐Ÿ’›

What else should I consider?

If you have a joint mortgage, one thing to consider is that if you were to pass away, your mortgage payments would be automatically passed to your mortgage partner. This means that they would have to keep up with the payments and this is where life insurance could really come in handy.

With life insurance, they would be able to make the payments easily without having to sell the property or get extra help.

Can I cancel my life insurance policy?

Every life insurance insurer will have their own cancellation policy, but yes, you can cancel your life insurance policy.

At Bequest, you can cancel your policy within 30 days and get a full refund. After that, you can get in touch with our team at any point and cancel your policy.

Is there a difference between life insurance and mortgage life insurance? ๐Ÿค”

There are many types of life insurance, and mortgage insurance is one type, under the umbrella of life insurance.

Life insurance

However, level term and other types of life insurance can be used for different financial needs other than mortgage. They can be used to pay off other debts, tuition, university fees and to help your loved ones keep up with other financial bills etc.

Mortgage life insurance

Mortgage insurance is usually considered a decreasing life insurance policy. This type of life insurance cover has your payout decreasing while you pay off your mortgage. If you pass away during the term, it would help your beneficiaries finish paying off your mortgage.

You can also use level term life cover, which is a set lump sum, to help pay off your mortgage after your death.

Should I get critical illness cover with mortgage life insurance?

Critical illness cover is extra cover to protect your loved ones from financial instability if you were to have a big health emergency. With critical illness cover, this is separate from other forms of life insurance and could be a great added bonus to the amount of life insurance you have currently taken out.

When would critical illness be helpful?

Purchasing critical illness cover could be helpful if you have loved ones who are financially dependent on you and your life insurance payout wouldn't be enough to provide for them if you were to have a health emergency. However, the older you get, the more expensive it becomes, and it will only payout if you have a specific condition that is listed on the policy.

FAQs โœ”๏ธ

Am I eligible for mortgage life insurance?

This is determined by the insurance provider you are looking to get coverage with. Most companies have a free quote available and this can help you determine if you are eligible for their coverage.

Whatโ€™s the difference between mortgage life insurance and level term life insurance?

Mortgage life insurance is typically known as decreasing term life insurance. This type of insurance has the policy decreasing over time as you pay off your mortgage, and at the end of the term your payout will be 0. However, level term life insurance is consistent and fixed throughout the term and will payout if you were to pass away during your predetermined term.

Can I get life insurance for my mortgage from my mortgage provider?

Your mortgage provider will normally give you information on a life insurance provider based on their relationship with or knowledge of providers. Those options may not be the best for you. So you can do your own research and find the best policy for you based on your personal circumstances.

Can I put a mortgage life insurance policy in trust?

Yes, you can put both level and decreasing policies in trust. You can speak to your insurance broker about doing this to avoid Inheritance Tax. Our partners at James Pearson Estate Planning would love to speak to you about putting your estate in a trust.

Can I get a mortgage life insurance policy if I have a pre-existing medical condition?

It really depends on what life insurance company you are covered with. They will have their own conditions that are covered and those that aren't. If you are covered with a pre-existing medical condition, it may be more expensive than other policies.

Will mortgage life insurance affect my mortgage interest rates?

Mortgage life insurance and mortgage interest rates are not actually connected. Therefore your policy doesn't affect your repayment mortgage rates unless you decide to pay your mortgage off at a higher rate.

However, if you're using the insurance to pay off your mortgage, you need to make sure your interest rate is higher than the decrease (at Bequest it's 8%) each year. Otherwise, your full mortgage may not be paid.

Will I be covered if my mortgage provider goes bust?

In most circumstances, if your mortgage provider goes bust, they would normally sell all of their existing mortgages to other lenders.

Should I have two single policies or joint cover?

There are multiple reasons why you should have two single policies instead of a joint life insurance policy. A joint cover policy pays out when one person passes away, and then the cover stops. The second policy holder would need to get another policy at a new age and health status. At Bequest, you can get two single policies for almost the exact same amount per month, but with two payouts should you both pass away.

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Safeguard your loved one's future and get your cover today! ๐Ÿคบ Apply for Bequest Life

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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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