Mortgage Life Insurance

How It Works

You take out cover that matches your mortgage: the same amount and the same number of years. As you make your monthly repayments, the balance you owe goes down. Decreasing cover is set up to follow the same path down, staying roughly level with what you still owe.

Your monthly premium stays the same throughout, even though the cover reduces. If you die, or are diagnosed with a terminal illness, during the term, the payout is enough to clear the remaining balance, and your family keeps the home. If you reach the end of the term, the mortgage is paid off and the cover simply ends.

Decreasing Or Level: Which Suits Your Mortgage

The right type depends on how your mortgage is set up.

• Repayment mortgage, use decreasing term. Your balance falls each month, so decreasing cover matches it and costs less.
• Interest only mortgage, use level term. Your balance stays the same, so you need cover that stays the same too.

If you also want money left over for your family beyond the mortgage, you can take level term for the full amount, or add a separate policy for living costs.

Three Covers People Mix Up

Three different products protect your home in different ways. It helps to know which does what.

This page is about the first one. Payment protection, sometimes called MPPI, is separate cover that helps with your monthly payments if illness, injury or redundancy stops you working. Buildings insurance covers the bricks and mortar, and your lender usually insists on it.

Do You Need It

It is not a legal requirement, and no lender can force you to buy their own policy. But for most people with a repayment mortgage and a partner or children, it is sensible cover, and it can be cheap. It matters most when someone else lives in the home or shares the mortgage with you.

If you are single with no dependants, you may not need it, since whoever inherits the home could sell it to clear the loan. Clearing the mortgage first still makes life easier for them, though.

What It Costs

Decreasing cover is usually the cheapest life insurance, because the payout falls over time. For the same person and cover, it tends to cost around 25% to 40% less than level term.3 As a rough guide, a healthy non smoker in their thirties might pay around £10 to £16 a month for £150,000 of decreasing cover over 20 years, with the average decreasing policy working out at about £17 a month.3

You can add critical illness cover so the mortgage is also cleared if you are diagnosed with a serious illness listed in the policy. It costs more, but gives wider protection. Buying while you are young and healthy locks in a lower price.

If You Move Or Remortgage

Your cover does not move with your mortgage automatically. If you move home, borrow more, or remortgage onto a longer term, check that your cover still matches what you owe. You may need to top it up or take out a new policy. It is worth reviewing your cover whenever your mortgage changes.

Worked Example

This is a simple illustration, not a quote or a promise of cover.

Aisha and Tom have a £200,000 repayment mortgage over 25 years. They take out joint decreasing term cover for the same amount and term, written in trust, for around £18 a month. In year 8, Tom dies. By then the balance has fallen to about £150,000, and the policy pays roughly that amount, clearing the mortgage. Aisha and the children keep their home, with no mortgage to worry about.

Why Use Surely

It is easy to accept the first mortgage cover you are offered, often from the lender, without checking whether it is good value. Surely helps you compare.

We explain decreasing and level cover in plain English, show price and claims record side by side, and help you compare cover from selected UK insurers for the very same protection. We compile and cross check real UK pricing and claims data.

The reassurance is in the numbers. In 2024, UK insurers paid a record £8 billion in protection claims, and around 97% of life insurance claims were paid.1 Surely helps you compare and get quotes online, and does not give advice itself.

Frequently Asked Questions

Do I have to buy life insurance to get a mortgage?

No. It is not a legal requirement and no lender can force you to take their own policy. Buildings insurance is usually required, but life cover is your choice, though it is sensible if others depend on the home.

Is mortgage life insurance the same as decreasing term?

Usually yes. When decreasing term cover is set up to match a repayment mortgage, it is often sold as mortgage life insurance or mortgage protection. The terms are used to mean the same thing.

Should we get a joint policy or one each?

A joint policy is simpler and often cheaper, but it pays out only once, then ends. Two single policies cost a little more, but each pays out, so the surviving partner keeps cover. Many couples with children prefer two singles.

What about an interest only mortgage?

Decreasing cover does not suit an interest only mortgage, because the balance does not fall. Use level term, which keeps the payout the same throughout to match the unchanged debt.

Is the payout taxed?

It is normally paid tax free. It can count towards inheritance tax, charged at 40% above £325,000, unless the policy is written in trust. Tax treatment depends on your circumstances and can change.2

This guide deals with death and serious illness. For impartial money guidance you can use MoneyHelper, the government backed service.

Getting Started

Match your cover to your mortgage: the same amount and the same term. Choose decreasing cover for a repayment mortgage, or level for interest only. Consider covering both partners, write the cover in trust, then compare a few insurers and answer the health questions honestly.

Cover, price and eligibility depend on your personal circumstances, age, health, smoker status and insurer terms. Life insurance pays out only during the policy term and is subject to the policy terms and claim approval. Surely helps you compare insurance and does not provide regulated financial advice.