Mortgage Life Insurance

Mortgage life insurance is a life insurance policy intended to provide financial protection for a mortgage.

If the insured person dies during the policy term and the claim meets the policy conditions, the insurer pays an agreed lump sum.

The payout could be used to:

• Repay the mortgage
• Reduce the outstanding mortgage balance
• Help maintain monthly mortgage payments
• Cover other household commitments
• Support a surviving partner
• Provide financial support for children
• Help with funeral or legal expenses

The benefit is not necessarily paid directly to the mortgage lender. This will depend on how the policy has been arranged, whether it has been assigned and whether it has been placed in trust.

Mortgage life insurance normally only pays if death occurs during the policy term. If the policy ends without a claim, no benefit is usually payable.

When arranging mortgage life insurance, you select:

• The amount of cover
• The policy term
• The type of cover
• Whether it covers one or two people
• Whether additional benefits are required

You then apply to an insurer and answer questions about your health, lifestyle, occupation and other relevant circumstances.

The insurer assesses the application and decides whether it can offer cover. It may:

• Offer its standard premium
• Charge a higher premium
• Apply particular terms
• Postpone the decision
• Decline the application

Once the policy starts, you pay the agreed premium. If a valid claim is made during the term, the insurer pays the applicable benefit.

If you stop paying the premiums, the policy will normally end and you will no longer be covered.

Mortgage life insurance is not generally a legal requirement and is not usually compulsory when taking out a mortgage.

A mortgage lender will normally require suitable buildings insurance, but life insurance is generally optional.

However, you should consider what would happen to the mortgage if you or another borrower died.

Without suitable cover, the surviving household may need to rely on:

• Its remaining income
• Savings
• Employer death benefits
• Pension benefits
• Support from family
• Selling other assets
• Selling the property
• Reducing household expenditure

Life insurance could provide financial support, but whether it is needed and how much cover is appropriate will depend on your circumstances.

Mortgage life insurance should reflect more than the basic mortgage balance.

MortgageKey can review:

• Your outstanding mortgage
• The mortgage term
• The repayment method
• Your income
• Your partner’s income
• Financial dependants
• Household expenditure
• Other debts
• Existing savings
• Employer benefits
• Existing life insurance
• Your health and lifestyle
• Your budget

We can then help you consider whether decreasing, level or another form of life insurance is appropriate and whether additional critical illness or income protection should be explored.

All applications are subject to medical and financial underwriting, eligibility and the insurer’s terms. Cover does not begin until the insurer confirms acceptance and the policy starts.