Life insurance vs mortgage protection insurance

Life insurance and mortgage protection insurance are there to make sure your family and loved ones are taken care of financially, but that means different things to everyone. Whether you have a home to protect or other commitments your family might need a lump sum for, there are products to suit.

What is mortgage protection insurance?

Mortgage protection life insurance is a type of term life insurance. It’s sometimes called decreasing life cover. It could help your family pay off a mortgage or other long-term loans if you die at any point during the term of the policy.

The amount you have left to pay on your mortgage usually drops over time. And if you have a smaller mortgage, you need less life cover.

With decreasing life insurance your premiums are usually lower compared to other types of life cover. You’ll pay the same amount each month, and your policy term should match your mortgage length, with the cover amount decreasing over time broadly in line with mortgage.

However, there are a few things to remember. Your cover will end if you don’t pay your premiums, the cover amount is only paid out once, mortgage protection insurance is not directly linked to your mortgage, and there's typically no cash-in value at any time.

What is life insurance?

Life insurance policies are designed to cover any financial commitment you might have and are not directly linked to your mortgage.

Your loved ones might need an amount to pay off the mortgage or you might be considering the long-term cost of childcare. Maybe you want to know you could still send your children off to university if you were no longer around.

Term life insurance covers you for a set period of time which could be the length of your mortgage or until your children are grown up. You could just be considering leaving a lump sum behind to help cover funeral costs. There's typically no cash-in value at any time.

To find more details about the different types of life insurance, check out our dedicated webpage.

While you don’t legally need a life insurance policy to get a mortgage, it’s a very useful way to protect your home and provide your family with some financial security after your passing. Whether you’re a homeowner, a landlord, or even renting or owning your home outright, it might have crossed your mind that life insurance could be a good idea.

Getting a mortgage can be a big step in life and it could be an ideal time to stop and consider what protection you have wrapped around you and who you love.

Mortgage protection life insurance can help give some reassurance for the future. So, you can get on with enjoying life today, knowing it will help protect the important people in your life later on. That if you die before paying off your mortgage, and it’s during the policy term of your life insurance, they could use the money from a successful claim to help pay off the rest of the mortgage, other long-term loan, or spend on whatever they want. Remember, there is typically no cash-in value at any time.

Even if you don't have a mortgage, having life insurance can still be useful when it comes to future financial protection.  Your life insurance could help towards covering other expenses, like:

• Income replacement or support
• Debts and financial obligations, like car loans or credit card balances
• Funeral costs
• Education funds for younger family members

While you don’t need a life insurance policy to get a mortgage, it’s a very useful way to help protect your home and provide your family with some financial security after your passing.

If life insurance, and the need for a more general financial security, suit your circumstances then there are two types to consider: 

Level term life insurance or Family Protection insurance

With level term, your premium and cover amount remain the same throughout the policy term. You can also protect your cover from the effects of inflation with this cover.

Decreasing term life insurance or mortgage protection insurance

This type of policy is built with mortgages in mind, although you can use it for other purposes too.  Your cover amount decreases each month like the outstanding balance of a mortgage.  It may also cost less than other types of term life insurance because the payout reduces as your mortgage does. 

To understand more about the differences between level and decreasing term insurance, we've put together a useful guide.

Do I need life insurance if I'm a landlord?

Life insurance can offer landlords some much needed protection. Having a life insurance policy can ensure that if you were to pass away while acting as a landlord, your family or business partners could possibly be able to continue covering the mortgage payments and other associated costs, like repairs or bills. So, even if you already owned the home outright and were just renting it out for extra income, a life insurance payout could help cover any maintenance, bills, or taxes. Remember, there is typically no cash-in value at any time.

You can use our life insurance calculator to figure out how much life insurance you might need. It’s based on how much you’d like to leave your family, or the balance of your mortgage or other debts. And it only takes a few minutes.