Life Insurance vs Mortgage Insurance

Passing away is never a pleasant thing to ponder.

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Passing away is never a pleasant thing to ponder. However, the practical duties of a household must consider what happens should you unexpectedly die. Will your loved ones be financially secure? What happens to the mortgage on your home? How will my family have any money to live?

These are all common questions addressed by mortgage protection life insurance and a standard life insurance policy. This guide will look at both plans and which one might take care of your concerns.

Life Insurance vs Mortgage Insurance: The Differences

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Let’s begin by looking at the fundamental differences between life insurance and mortgage insurance.

What is Life Insurance?

The general definition of life insurance is an agreement between you and an insurer, where they agree to pay your beneficiaries a lump sum of cash upon death. However, the term life insurance gets used more broadly to describe a series of financial products in the same vein.

Policyholders of a life insurance plan will pay a monthly premium in exchange for the guarantee of a payout on death, serious illness, or unemployment, depending on the product. The leading products in life insurance are below:

  • Term Life Insurance – This is a policy that offers guaranteed death benefit if the holder dies in a set term (i.e. 10, 15, or 20 years)
  • Whole of Life Insurance – The plan covers your entire life where premiums will get paid by the holder until passing away
  • Critical Illness Cover – The holder receives a lump-sum payment should they contract one of the pre-defined illnesses.

So now we have the gist of life insurance; what about mortgage insurance?

What is Mortgage Insurance?

Mortgage protection insurance is a more scoped financial product that pays off your home’s mortgage should you pass away before the final repayments. The product aligns with the concerns that should a homeowner unexpectedly pass, loved ones may not have the capability to continue to make repayments and subsequently keep living in the home.

Two categories of a mortgage life insurance policy are defined below.

Level Term Life Insurance

Level-term life insurance is a policy with a set term covering you for the entire amount of your mortgage. For example, if you took out a plan covering 25 years with the amount charged at £250,000, you’ll have your mortgage paid off if you pass away within that timeframe.

If there’s only a small balance on your mortgage and you pass away – say in year 24 of the term – the payout will cover the outstanding amount. The insurer will pass the remainder to loved ones to use as they please.

A scenario would be a mortgage with £3,000 left in the balance, where the policyholder passes in the final year of the plan’s term. The insurer will pay out to cover the rest of the mortgage and send the beneficiaries £247,000.

Decreasing Term Life Insurance

Decreasing term life insurance is the policy most typically associated with mortgage protection. The plans run parallel with the remaining balance on your mortgage, meaning that the agreement will only cover the outstanding amount on your house.

As defined in the title, the coverage decreases as you continue to make home repayments. You could start with £250,000 worth of coverage in your decreasing term life insurance policy. However, in 10 years, it will cover £150,000 as that is the remaining balance.

These plans tend to be cheaper than level-term life insurance.

So with the differences in mind, which would be the better policy?

Which is Better, Mortgage Insurance or Life Insurance?

Life insurance cover and mortgage life insurance policies have their merits, meaning one isn’t better than the other. The plan’s design meets certain personal circumstances and addresses the concerns of policyholders and beneficiaries alike.

Life insurance cover and mortgage life insurance policies have their merits, meaning one isn’t better than the other. The plan’s design meets certain personal circumstances and addresses the concerns of policyholders and beneficiaries alike.

However, there might be a plan that suits you better than the other. Discover the policy you should choose comes in the process of weighing up the advantages and disadvantages of both, as we detail below.

The Pros and Cons of Life Insurance

Life insurance guarantees an agreed lump sum to your beneficiaries upon death or critical illness, securing the financial future of your loved ones. The advantages and disadvantages of taking out a life insurance policy include:


  • Your loved ones will receive a financial fallback should you pass away unexpectedly.
  • There’s a guaranteed figure for your lump sum.
  • Significant expenses and debts won’t have to get passed on to your beneficiaries.


  • Most life insurance plans have terms, on average, around 25 years. If you don’t pass away in that time, there will be no life insurance payout for your loved ones.
  • You don’t see a return on your investment, as you’ll die before there’s any payout.

The Pros and Cons of Mortgage Insurance

Mortgage insurance takes care of your mortgage repayments; offering loved one’s peace of mind that they won’t have to tackle the remaining debt. But this plan, too, has positives and negatives, as outlined below.


  • There’s a guarantee that your mortgage debt will get taken care of post-death.
  • You don’t have to pass what’s probably your most significant debt to your loved ones.
  • The plan eliminates the concern of your family losing your home after you pass away.


  • The policy only covers your mortgage and doesn’t pay out any other debts or provisions.
  • Those who have an interest-only mortgage won’t benefit from the plan.

Considering the pros and cons of life insurance and mortgage protection may leave you in limbo about whether you can afford the premiums. The expenses in parallel to the plans’ benefits might have you wondering whether you need to buy life insurance.

Do I Need a Life Insurance Policy or Mortgage Insurance Plan?

We compare plans from the leading life insurance providers

Life insurance and mortgage cover give prospective policyholders peace of mind that their loved ones will be financially secure should they pass away. Either your home’s outstanding balance will get paid, or they’ll receive a lump sum of cash to spend as they please.

However, there are critical considerations when deciding if one of these plans could benefit your family. You can discuss options with experts and compare top insurers to find a tailored plan for your needs.