Last reviewed: June 2026
TL;DR- Life insurance for a mortgage pays a lump sum on death that can be used to repay the outstanding mortgage balance.
- Decreasing term insurance reduces the sum insured over the policy term, matching the reducing balance on a repayment mortgage.
- Level term insurance pays the same amount throughout the term - more appropriate for interest only mortgages or for wider family protection.
- Policies written in trust pay out faster (outside probate) and may reduce inheritance tax - recommended for most mortgage-linked policies.
Decreasing Term vs Level Term Insurance
The two main types of life insurance used by mortgage holders differ in how the sum insured changes over the policy term:
- Decreasing term insurance: the sum insured reduces each year, following the expected decreasing outstanding balance on a repayment mortgage. The premium is lower than level term for the same initial sum insured, because the insurer's maximum liability reduces over time. Suitable for repayment mortgages where the outstanding balance falls each month.
- Level term insurance: the sum insured stays the same throughout the policy term regardless of when a claim is made. The premium is higher than decreasing term. Suitable for interest only mortgages (where the balance does not reduce), for covering additional family needs beyond the mortgage balance alone, or where the borrower wants certainty about the payout regardless of timing.
Calculating the Right Amount of Cover
For pure mortgage protection, the sum insured should equal the outstanding mortgage balance at outset (with decreasing term set to track the repayment schedule). For wider family protection, the sum insured should also account for: income replacement needs for the surviving family; ongoing bills and living costs; childcare or education costs; and any other financial obligations. Many financial advisers recommend a sum insured equivalent to 10-15 times the annual income of the insured for comprehensive family protection, though this is a rule of thumb rather than a calculation.
Writing a Policy in Trust
A life insurance policy written in trust pays the sum insured directly to the named trustees (for the benefit of named beneficiaries) rather than into the deceased's estate. The key advantages are: the payout is made without waiting for probate, which can take many months; and the payout falls outside the estate for inheritance tax purposes (potentially saving 40% IHT on the sum insured). Most insurers offer simple bare trust or discretionary trust forms at no extra cost. Writing the policy in trust is strongly recommended for mortgage-linked life insurance where speed of payout and IHT efficiency are important.
Joint vs Separate Policies for Couples
Couples with a joint mortgage can either take out a joint life policy (which pays out on the first death, then ceases) or two separate single life policies. Two separate policies cost more in total premium but offer greater long-term value: each pays out on the respective insured's death regardless of when that occurs, so the surviving partner retains life cover after the first death. A joint policy ceases after the first death, leaving the survivor uninsured at what may be an older age when new cover is more expensive. Two single policies are generally preferred by most protection advisers.
Frequently Asked Questions
Does my employer's death-in-service benefit replace mortgage life insurance?
Employer death-in-service benefits (typically 2-4 times annual salary) can supplement or partially replace personal life insurance, but they are not portable and cease if the borrower changes employer or becomes self-employed. For a mortgage expected to run for 25 years, relying on employer benefits without personal insurance creates a risk of being uninsured if employment circumstances change. Separate personal life insurance provides continuity regardless of employment status.
How much does life insurance for a mortgage cost?
Premiums depend on the sum insured, the term, the age and health of the insured, and whether the policy is on a decreasing or level term basis. A healthy 30-year-old might pay £10-20 per month for £200,000 of decreasing term cover over 25 years. Premiums increase with age, smoking status and health conditions. Comparing quotes from multiple insurers through a protection adviser is the most effective way to find competitive terms.
Can I get life insurance if I have a serious health condition?
Yes, in many cases, though the premium may be higher (loaded) or specific conditions may be excluded. Insurers assess each application individually. A specialist protection adviser who has relationships with the underwriting teams of multiple insurers is important for applicants with health conditions, as some insurers are more willing than others to offer cover for specific conditions.
What is the difference between mortgage life insurance and buildings insurance?
They cover completely different risks. Mortgage life insurance (life cover) pays a lump sum on the death of the insured - protecting the family from having to repay the mortgage. Buildings insurance covers damage to the physical structure of the property from fire, flood, subsidence and other specified risks. Buildings insurance is mandatory under virtually all mortgage terms; life insurance is not mandatory but is strongly advisable.
