What Life Insurance Do I Need for My Mortgage?

I am looking at life insurance to cover my mortgage but there are so many different types, which one do I need?

Question asked by Diane Davies

The most common type of Life Insurance taken out to cover a mortgage is called Term Insurance. As the name suggests, Term Life Insurance runs for a specific ‘term length’ and then the policy ends.

How Term Life Insurance Works

The term length is often set so that it matches the length of time you have left outstanding on your mortgage. As such, if you were to pass away during the term of the mortgage your Life Insurance policy would pay out and your family would have the funds to repay the loan.

Level Term vs Decreasing Term Insurance

Term insurance comes in two forms: Level Term Insurance and Decreasing Term Insurance. The former is often used to cover an interest-only mortgage as the amount of cover remains fixed over the life of the policy.

With the latter, Decreasing Term Life Insurance, the amount of cover declines over the term of the policy. This happens because the amount of debt outstanding on a repayment mortgage also declines over time as the principal capital is repaid.

For more information please see our Mortgage Life Insurance guide.

With both policy types it is possible to have a joint plan with your partner and include Critical Illness Cover to protect against the risk of serious illness or injury.

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