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Mortgage Life Insurance Guide 2024

Our insurance experts explain how life insurance for mortgages works and how to get the best cover to protect your family home in 2024. Most mortgage borrowers will want to protect their family against potential serious financial difficulty if they were to die during the term of the mortgage.

We constantly review the UK mortgage and life insurance market to be able to tell you what cover is best for your family. Our latest independent expert review looks at the best life insurance for mortgage policies and how to save money from the UK’s top insurance companies.

One of the most important things to think about when you take out a new mortgage or a remortgage, is mortgage life insurance to protect your home. Any mortgage borrowers should be advised to at least consider life cover, especially parents or any financial dependents.

Life insurance for mortgages is also known as ‘decreasing term life insurance’ because it reduces with your mortgage balance. Your mortgage advisor should recommend life insurance for your mortgage debt in case something happens to you or your partner to prevent you from making your mortgage repayments.

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60-Second Summary – Best Life Insurance for Mortgages 2024

A mortgage is a debt that is secured against your home to help you to be able to buy a property either to live in or to rent out. You would usually repay your mortgage over a period of between 20 and 40 years and most mortgages are taken out for between 80% and 90% of the value of your property.

Life insurance for mortgage policies start from £5 per month and can help your family to pay off your mortgage if a parent dies.

  • Life insurance for mortgage policies are the cheapest type of life cover because the balance reduces over the term of the policy (decreasing term life insurance).
  • Financial experts, including Martin Lewis recommend that parents and adults with financial dependents (e.g. children and dependent parents) should have life insurance.
  • Life insurance for mortgage premiums start from as little as £5 per month and they can be extremely easy to set up for most applicants.
  • People with pre-existing medical conditions can also get life insurance to protect their mortgage and their home.

There is a life insurance policy that is specifically designed for a mortgage, called ‘decreasing term life insurance’ or ‘mortgage life insurance’. This is because these policies will reduce or decrease with your mortgage balance and they are designed just to pay off your remaining mortgage balance.

A life insurance for mortgages policy will also usually be the cheapest type of life insurance, also because it reduces. Other types of life insurance (e.g. family life insurance and whole of life insurance) will pay out a level amount throughout the term of the policy, and therefore cost more.

You can take out family life insurance or level term life insurance for your mortgage, if you want to take out extra cover.

Below is a diagram that shows how life insurance for mortgages decrease with your mortgage balance.

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You should also note that the amount your life insurance for mortgage reduces is a similar rate to the capital on your mortgage. Your mortgage is mainly interest in the first several years and capital in the latter years which is the same life insurance for mortgages.

Note: Make sure that your life insurance for mortgage rate is more than your mortgage standard variable rate (ideally 8% to 10%).

Bank of England Base Rate: 5.25% (April 2024)

Average Standard Variable Rate: 8-9% (April 2024)

Even though life insurance is not mandatory to get a mortgage, it is certainly highly recommended and especially parents with young children. It’s important to think about how your family would continue to repay your mortgage if you or your partner dies, even though it’s not a pleasant subject to think about.

Martin Lewis also strongly recommends that parents take out life insurance to protect their homes and their family. In this interview on This Morning, Martin Lewis explains more about how each type of life insurance works, which includes a brief explanation of mortgage life insurance.

Martin Lewis’ Guide to Life Insurance – Different Types | This Morning

You can get life insurance for a mortgage from as little as £5 per month, but the premium that you pay will depend on your age, health and the amount of cover you need. It’s difficult to put a price on protecting your children and your family home, but also we know that life can be expensive, so just think about what’s important and affordable.

Currently over 40% of mortgage borrowers in the UK don’t have life insurance for mortgage protection.

The average cost of life insurance for mortgage borrowers in the UK is £7.47 for decreasing term (mortgage protection). Based on the average mortgage debt in the UK of £189,500 in 2023 with a mortgage term of 32 years, and the average age of a mortgage borrower of 34 years old.

The premium quoted in our average cost of life insurance for mortgage was generated using our live pricing systems on 01/04/24. Prices can vary for each individual depending on their age, cover requirements and health or medical history.

We also looked at the average cost of life insurance for mortgage borrowers that were smokers which is £13.93 for decreasing term (mortgage protection).

Many mortgage borrowers think that they have to have life insurance for their mortgage which isn’t true. Life insurance for mortgage borrowers is not mandatory or compulsory and so you need to choose if you want to take it or not.

Some of the most important things to consider when you’re thinking about whether to take out life insurance for your mortgage:

  • Have you got children or dependents and what would happen to them if you or your partner dies? If you think about the unthinkable and how would your children be able to repay your mortgage to stay in the family home if the household lost your income.
  • Do you have enough savings to pay off your mortgage if you or your partner dies? Some people are lucky enough to have some savings that would help them to manage financially if a breadwinner in the household passed away. If you think about this scenario, would you have sufficient savings for your family to be able to continue to repay or clear your mortgage.
  • What would happen to your family or your partner if your household income dropped? Thinking about your household income and the impact on your family if it was to reduce significantly or completely.

Some mortgage lenders can insist but you have life insurance for your mortgage debt in some circumstances. These can be situations such as where there is a history of poor credit or an unusually high loan to value ratio.

Life insurance for mortgages is to give you peace of mind that your family has financial protection in place if the worst were to happen. Mortgage borrowers without dependent children or any financial dependents might not necessarily need life insurance to protect the full mortgage balance.

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The cost of life insurance for mortgages will vary depending on your age, amount of cover, and your individual circumstances. Below are some examples of life insurance premiums for mortgage protection for illustration purposes.

Our experts have generated these quotes from our live pricing software from the UK’s top life insurance brands.

 [TABLE]

Life insurance for mortgages is designed specifically to clear the remaining mortgage balance if a policy holder dies. The amount of life insurance payout should be roughly the same as the amount remaining on your mortgage. These policies are specifically designed to reduce at roughly the same rate as you’re mortgage balance as you pay it off.

Even though life insurance for mortgages is not specifically tied to the mortgage debt, the payout should be used to clear the remaining mortgage balance. This should then leave your family with no outstanding debt on their property and therefore mean that they can remain in the family home as normal.

Clearly, the loss of a parent is a unthinkable and distressing time for any family and life insurance for mortgages will help to reduce any additional financial stress during an already difficult time.

Below is an example of how a life insurance for mortgage purposes would payout and how the claim process works.

Mortgage life insurance claims process:

  1. Inform life insurance company about the death of the policy holder
  2. Provide evidence such as ‘death certificate
  3. Claim will be processed through a claims handling team
  4. If policy is in trust then claim will usually payout in a few weeks or if not in trust then it may take slightly longer to process
  5. Payment will be sent to the beneficiaries bank account (e.g. spouse, children, trustees)
  6. The family can then use the pay out to clear the remaining mortgage balance directly with the mortgage lender

This is a fairly standard claims process and applies to the vast majority of mortgage for life insurance claims. The process can vary slightly if there are legal complications such as issues with probate or medical investigations.

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One of the biggest issues that you need to think about is that life insurance for mortgages will only clear your remaining mortgage balance. This means that there won’t be much if anything left over to help your family to cope financially other than no mortgage repayments.

Many people think that just having life insurance for their mortgage is sufficient to protect their family if something happened to them in the future. If you don’t have any other savings or another income, then you might also need to think about looking for an amount of family life insurance to protect your children as well.

Life insurance for mortgages is specifically to protect the mortgage if one or both of the mortgage holders dies during the mortgage term.

Other potential disadvantages to life insurance for mortgages is that it only protects against death, and it will not protect against sickness, serious illness, or accidents. You should also consider what might happen to your mortgage repayments if you were unable to work and your income dropped significantly.

There are many different types of insurance policies that will help to protect you and your family against financial difficulty for all kinds eventualities. You just need to think about what is important to you and your budget for protecting your mortgage.

Generally, the answer is no you don’t pay tax on life insurance but there are some situations where tax might apply. Here are several different types of tax that can apply to a life insurance payout:

  • Inheritance Tax (IHT): Can apply to an estate over the IHT threshold (currently £325,000) at a rate of 40% (See Life Insurance Trust Guide)

There are many different types of tax in the UK and it’s important to understand the rules for things like life insurance.

Note: You can mitigate the potential for paying any tax on your life insurance by writing your policy in Trust. For more information about Life Insurance Trusts you can read our guide HERE or speak to a qualified tax advisor.

It is extremely common for people with pre-existing medical conditions to get life insurance to protect their mortgage. There are actually very few circumstances where you can’t get life insurance for your mortgage because of a medical or health issue.

There are quite a few ways to get life insurance for mortgages with a pre-existing medical condition and save money.

Here are some of the best ways to get life cover if you’ve been diagnosed with a medical condition:

  • Medical insurance specialists will be able to find you the cheapest and best cover to protect your family from their previous experience and knowledge.
  • Manage your health and medical condition can also help you to reduce your life insurance premiums to protect your mortgage.
  • Apply to the best company for your medical condition can be a great way to save a significant amount on your premiums, because certain insurance companies are better for different conditions.

Below is a list of the main groups of pre-existing medical conditions where people apply for life insurance to protect a mortgage.

Note: Mortgage life insurance premiums will generally be higher for people with pre-existing medical conditions. You can save money on your premiums by getting proper advice from a medical life insurance expert.

For more information call 0800 009 6559 or CLICK HERE.

According to top financial experts including Martin Lewis, the best way to get the cheapest and best life insurance is to speak to an expert or specialist. There are many different ways to buy life insurance and some of the most expensive options are banks, building societies and price comparison websites.

Best way to buy life insurance for mortgages

  • Discount life insurance experts
  • Life insurance specialists or brokers

You might want to avoid some of the options that many think are cheaper for life insurance, such as:

  • Banks or Building Societies
  • Price Comparison Websites
  • Direct to Insurance Providers

Speak to one of our friendly team of life insurance for mortgage experts by calling 0800 009 6559 or CLICK HERE.

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Is it worth paying for life insurance?

Yes, if you’ve got children or financial dependents then you should have life insurance to protect them if you die. Martin Lewis and the Financial Conduct Authority recommend that you take out life insurance to protect your family and your home. Generally, life insurance premiums start from as little as £5 per month and will be cheaper for younger adults.

Common myths about life insurance:

  • Life insurance won’t pay out (pays out 98% of claims)
  • People with medical conditions can’t have life insurance
  • Life insurance is expensive
  • Savings can be just as effective as life insurance
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What is the average cost of life insurance per month?

Based on recent research carried out, the average cost of life insurance is approximately £38 per month and the average level of cover is £152,000. Life insurance premiums also vary dramatically from one insurance provider to another and you can reduce your monthly premiums by shopping around.

Fundamentally, life insurance premiums vary depending on your age, health and the amount of cover that you need, starting from as little as £5 per month. You can also get life insurance to protect your family and your home against financial loss if you die.

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What does life insurance cover you for?

Life insurance is a monthly renewable ‘term insurance’ contract that pays out a cash lump sum or regular payments on death to your family or beneficiaries. Policies are most commonly used for family protection or mortgage protection for your loved ones if you die and your household income reduces, plus the additional issues of losing a parent or carer.

Traditional life insurance will not exclude any pre-existing medical conditions and will cover suicide after 12 or 24 months. You can also use life insurance for business protection purposes as well as tax-efficient business life insurance for directors or key people.

What are the disadvantages of life insurance?

The biggest and most common problem that consumers have with life insurance is the cost and the monthly premiums. This is the top reason for policy cancellations and why more people don’t take out life insurance to protect their family.

Another key disadvantage with life insurance is that it holds no investment value, nor can you cash it in. Life insurance works like any other traditional general insurance policy (e.g. car insurance, house insurance, pet insurance etc.), you pay a monthly premium and it will pay out in the event of a claim. Some people decide to use savings instead of taking out life insurance but you need to make sure that you have sufficient savings to cover the costs of death for your family.

Why do I need life insurance?

The fact is that nobody actually ‘needs’ life insurance, but it is strongly recommended that families and couples have cover to protect their loved ones in the event of death. Martin Lewis recommends life insurance and says “this is something that every parent, partner, or person with any other type of dependent needs to consider”.

Life insurance financially protects your loved ones if you die and pays out a cash lump sum to repay your mortgage, pay for school fees, replace lost income, and pay for regular outgoings. Mortgage life insurance is not linked to your mortgage debt so you can use it to pay off some or all of your mortgage.

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