Do you need life insurance to get a mortgage?

There is no law that says you need life insurance to get a mortgage. You do not have to have life insurance in place to get a mortgage, and several lenders state plainly that life insurance is not a requirement of their mortgage¹. A building society lending criteria guide puts it the same way: there is no requirement to purchase life assurance or other protection products⁵.

That is the general rule, not a guarantee for every case. Some lenders say you must have life insurance to get a mortgage with them, and others may consider it a condition of lending¹. A small number go further and write life assurance into their own mortgage terms. Capital Credit Union, for example, requires life assurance for the full amount of the loan, requires buildings and contents insurance, and highly recommends Mortgage Payment Protection insurance, while leaving you free to choose your own providers⁷.

So the honest answer has two halves. Legally, cover is optional. In practice, whether you need it depends on the lender you choose, the type of mortgage you take, and who would be left paying the loan if you died. What follows sets out when a lender can insist, how the two main types of cover match a mortgage, and what happens if there is no cover at all.

No law says you need life insurance for a mortgage

The starting point is that life insurance for a mortgage is a choice. Independent guidance is unambiguous: you do not have to have life insurance in place to get a mortgage, and while some lenders say you must have it to borrow from them, there is no law to say that you need it¹. Lenders confirm this about their own products. Life insurance is not a requirement of the mortgage at RBS, and the same wording appears on its Help to Buy page⁴. Yorkshire Building Society states that life insurance is not a condition of taking out a mortgage with it¹¹.

Where lenders do impose conditions, they are usually about the property rather than your life. Buildings insurance is not a legal requirement, but a mortgage lender might make it a condition of the loan, because the property is the security for the debt¹². Yorkshire Building Society's disclosure document draws the line clearly: buildings insurance must be in place as a condition of the mortgage, but taking insurance through its named partners is not a condition¹³. The distinction matters to a buyer, because it separates what the lender can insist on from what it can merely offer.

The practical consequence is that a lender cannot force you to buy its own life policy. Scottish Widows states that you do not have to take out this type of insurance with your mortgage, though some mortgage lenders may recommend that you do¹⁴. If a lender does require life cover as a condition of lending, you can still arrange it with any insurer, provided the cover meets what the lender has asked for.

When a lender can make life cover a condition

A lender can attach conditions to a mortgage offer, and life cover can be one of them. Nationwide sets out the position as it applies across the market: it is not a legal requirement to have life insurance for a mortgage, but some lenders may consider it a condition of lending⁶. Ulster Bank notes that lenders may request you buy life cover when you take out your mortgage¹⁵.

In most cases the condition is softer than it sounds. A lender may recommend cover, or ask for it as part of the application, without making the loan depend on it. Where a lender genuinely requires it, the requirement is usually written into the mortgage terms or the offer, so it appears in the paperwork rather than being mentioned at the end of a meeting. Reading the offer and the mortgage conditions is the way to find out which applies to you.

A few lenders do make it a firm requirement. Capital Credit Union's mortgage terms require life assurance for the full amount of the loan, alongside buildings and contents insurance, and highly recommend Mortgage Payment Protection insurance, while leaving the choice of provider open⁷. That is a condition of borrowing from that lender, not a rule that applies to mortgages generally.

Decreasing or level term: matching cover to your mortgage

Mortgage life insurance comes in three types: decreasing term cover, level term cover and increasing term cover³. The first two do most of the work for mortgage borrowers, and the choice between them follows the shape of the debt.

A decreasing term policy pays out an amount that falls over the life of the policy, which is usually designed to match a decreasing debt such as a repayment mortgage¹⁶. The final payout gets smaller over time so that it matches the amount left on the mortgage². That suits a repayment mortgage, where the balance falls as you pay it down, and it is why decreasing cover is normally cheaper than level cover for the same starting sum.

A level term policy does not decrease over time, which makes it well suited to an interest-only mortgage, where the amount borrowed stays the same until the end¹⁷. It also suits anyone who wants the payout to do more than clear the mortgage, because the sum stays the same in real terms even as the debt falls.

The term and the sum insured are usually set to mirror the loan. The term is set to the same as the mortgage, say 25 years, and the sum insured should match the amount borrowed². If you remortgage or take a second mortgage, you will need cover to match the new debt, and the guidance is firm: never cancel a policy without having secured a replacement first².

What mortgage life insurance pays out, and when it does not

Life insurance pays out a single tax-free lump sum on death, or on a terminal illness⁹. It is not an alternative to mortgage payment protection, for the simple reason that it only pays out when you die¹⁸. That distinction is the one most often missed. A policy that clears the mortgage on death does nothing for a borrower who loses their job or cannot work through illness, because those are different risks covered by different products.

Terminal illness benefit is the main exception to the death-only rule. Many life insurance policies include it, which means the policy could pay out early if a doctor says you have less than 12 months to live, but not all policies include it¹⁹. A single life policy will pay out on death or, often, if you receive a diagnosis that you have a terminal illness and will die within 12 months⁸. Where it is included, the payout is usually the same sum, paid early rather than on death.

What the policy does not do is cover the events that stop you earning. Mortgage payment protection insurance could cover your mortgage payments for a time if you have lost your job, or cannot work because of an accident or ill health²⁰. Critical illness cover and income protection sit alongside life cover for the same reason, and some policies pay out for terminal illness under a life policy, mortgage payment protection, critical illness cover or income protection insurance depending on what is held²¹.

What happens to the mortgage if you die without cover

The debt does not disappear with the borrower. If the mortgage lender required life insurance, that policy may pay off the full amount of the loan; if there is no insurance, or for second mortgages that are not covered, the property may have to be sold²². That is the practical answer to what happens without cover: the estate, or the surviving borrower, has to find the money, and the usual way to find it is to sell the home.

For joint borrowers the risk is sharper. It is likely to be important to have mortgage protection insurance to pay off the loan if one of you dies²³. Without it, the survivor keeps the mortgage but loses the second income that was helping to pay it, and the lender's options do not change because of the bereavement. If payments are missed, the lender can take possession action, and there is help available before that point: if you have lost your job or are too ill to work, it is worth checking whether you have mortgage protection insurance to cover your payments²⁴.

Life cover can do more than clear the loan. Having the right life cover in place can help a family, and it could be the difference between being able to pay the mortgage and not¹⁴. A policy can be arranged so that it pays out an amount sufficient to repay the mortgage balance, and cover against critical illness and loss of income can also be arranged alongside it²⁵. Where there is no cover and no other money, the property may have to be sold to repay what is owed²².

Does a joint mortgage life policy cover both of us?

A joint policy covers two people on one plan, and it pays out once. Joint life insurance pays out upon the death of the first policyholder during the term, then the policy ends and does not cover the surviving partner⁸. For joint mortgage holders, both people need life insurance, either jointly or separately². The choice between the two is about what happens after the first death, not about the cost of the first payout.

Separate policies cost more than one joint policy, but they leave the survivor with cover in place. A joint policy leaves the survivor uninsured from the moment the first claim is paid, which matters if the survivor still has a mortgage, children or both. An example shows how the sums work: a couple with a mortgage and children could hold joint decreasing term cover of £250,000 plus joint level term cover of £250,000, giving £500,000 in total if both die, against a mortgage of £250,000⁸.

There is also a limit on how much cover makes sense. If you are single with a £200,000 mortgage, you do not need £1m of life insurance, and that would raise suspicions²⁶. Insurers look at whether the sum insured matches a real need, and a payout far beyond the debt and the household's needs can prompt questions at underwriting and at claim.

How long should the term be, and what affects the cost

The usual approach is to match the policy to the loan. The term is set to the same as the mortgage, say 25 years, and the sum insured should match the amount borrowed². That keeps the cover running for as long as the debt does, and it keeps the premium down compared with a longer term or a larger sum. If the mortgage is repaid early, the policy does not have to end with it, and the payout would then go to whoever is named on the policy.

Cost depends on the person, not the property. The factors that may affect the cost of mortgage life insurance include age, health and medical history, the level of cover needed, occupation, and lifestyle and hobbies¹⁷. The price depends on your health and lifestyle²⁷. That is why two borrowers with the same mortgage can pay very different premiums for the same sum insured.

There are several routes to buying it. You can arrange cover through your mortgage provider, an independent financial adviser, your bank if it offers it, or direct from an insurer³. Buying through your mortgage provider is not necessary, and in many cases it can turn out to be more expensive, with discount brokers often the cheapest route¹⁷. Whoever arranges it, the cover has to meet the need: a policy that pays too little, or runs for too short a term, leaves a gap.

Life assurance is one of the ongoing costs of owning a home, alongside mortgage repayments, mortgage protection insurance, contents insurance, rates, utility bills, and ground rent and service charges²⁸. Budgeting for it at the outset is easier than adding it later, when age and health have usually made cover dearer.

Where to get help

If a mortgage payment becomes unaffordable, the first step is to talk to the lender before arrears build, and free help is available. If you have lost your job or are too ill to work, check whether you have mortgage protection insurance to cover your payments²⁴. If you are struggling with debt, free and impartial debt advice is available from charities including StepChange²¹.

For complaints about the sale or administration of a protection policy, the Financial Ombudsman Service can look at what happened and whether the firm acted fairly. On the mortgage side, Shelter England and Shelter Cymru provide free housing advice, including on joint mortgages and on dealing with missed mortgage payments²³.