Do I need life insurance with a mortgage?

Lenders do not usually require it, and a mortgage may be the largest debt a family has. What life cover is for, the difference between the main types, and how to think about how much.

6 min read · Written for homeowners

Is it compulsory?

For most residential mortgages, no. Lenders do not usually require life insurance, so you can complete on a house without it.

The question to ask is what would happen to the people living in the house if the person paying for it died.

The main types

Decreasing term cover

falls roughly in line with a repayment mortgage, so it is designed to clear the debt. It is usually the cheapest way to protect the mortgage itself.

Level term cover

pays the same amount whenever you die within the term. It can clear the mortgage and leave money over for the family.

Joint or single policies

a joint policy pays out once, on the first death. Two single policies can pay out twice, which costs more but protects more.

Protecting income as well as the mortgage

Clearing the mortgage keeps a roof over the family. It does not replace the income that paid for everything else: bills, childcare, school costs, day-to-day living.

Households therefore look at protecting income as well as the debt. They also look at what would happen if someone could not work because of serious illness.

Deciding how much cover

What is left on the mortgage, and over how long?
What income would the family lose, and for how many years would they need it replaced?
What cover do you already have through work, and would you lose it if you changed jobs?
Are there other debts, and who would be responsible for them?

Questions people ask

Is cover through work enough? Sometimes. Cover through work ends when you leave that job.
Should it be written in trust? Often, so the money goes to the right people quickly and outside the estate. Ask about it when the policy is set up.
Does my health affect it? Yes. It is generally cheaper to arrange while you are younger and in good health.
What about critical illness cover? It pays out on diagnosis of a specified serious illness, and is a separate decision from life cover.

What to do next

Protection advice is something many mortgage brokers give directly. Ask your broker to look at what you have, what the mortgage would need, and what the family would need beyond it.

This article explains how things work. It does not take your circumstances into account. Your mortgage broker can introduce you to a regulated financial planner at Equity & General where the question needs one.

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