Life insurance for mortgage protection

For most households the mortgage is the largest monthly bill and the largest debt. If one of the people paying it died, the payments would still be due. A partner on a single income, or relatives inheriting the home, might have to sell it or struggle to keep up.

Life insurance can pay a lump sum that clears or reduces the outstanding balance, so the people you leave behind can stay in the home without the mortgage payment hanging over them.

Decreasing cover

The amount of cover reduces over the term, roughly in line with a repayment mortgage. Because the insurer's potential payout falls each year, it is usually the cheapest way to cover a repayment mortgage.

Decreasing policies reduce at an assumed interest rate set by the insurer. If your mortgage rate is higher than that assumption, your balance may fall more slowly than the cover. It is worth checking the rate the policy uses, and allowing some margin.

Level cover

The amount of cover stays the same for the whole term. It suits an interest-only mortgage, where the full loan is still owed at the end, and anyone who wants money left over after the mortgage is repaid, for example to support children. It costs more than decreasing cover for the same starting amount.

• •Repayment: the balance falls over the term, so decreasing cover is usually a good match.
• •Interest-only: the balance stays the same until the end, so level cover for the full loan is normally needed.
• •Part-and-part: some of the loan reduces and some does not. A combination of decreasing and level cover, or a single level policy, can be used.

Death-in-service benefit usually ends when you leave that employer, so it is worth checking whether you would want cover that stays with you.

The main factors are:

• •The outstanding mortgage balance and the remaining term
• •The type of mortgage, which decides between decreasing and level cover
• •Your age, health, smoking status and occupation, which the insurer uses to price the policy
• •Whether you also want money for your family beyond the mortgage
• •Whether you add critical illness cover, which increases the premium

We compare policy benefits and terms alongside price, because the cheapest policy is not always the one that suits you best.

Your life insurance does not change automatically when your mortgage does. After moving home, remortgaging, borrowing more or changing the term, check that the cover still matches what you owe and for how long.

Some policies let you increase cover when you move home or increase your mortgage without further medical questions, within limits set in the policy. If you need more cover, it can make sense to add a new policy alongside the existing one rather than replace it. Our guide to reviewing your existing protection explains what to look for.

Life insurance pays if you die during the policy term, subject to the policy terms. Many policies also include terminal illness benefit, which can pay out early if you are diagnosed with a terminal illness and meet the policy's definition.

It does not pay if you are seriously ill but not terminally ill, or if you cannot work. For those risks, look at critical illness cover for your mortgage and income protection for your mortgage or rent.