Protecting the people who matter most, whatever happens.
Every year, families in Bexleyheath take on a mortgage, often the largest financial commitment they will ever make, without stopping to consider what would happen if one of them died or became too ill to work. The mortgage would still need to be repaid. The bills would still arrive. The children would still need feeding and clothing and schooling. And yet the income that made all of this possible would have stopped.
Life insurance exists to address exactly this risk. It is not a complicated product, but there are several types with different structures, different purposes, and different costs. Understanding which type of cover is right for your family’s specific circumstances is where taking advice makes a real difference. This guide explains the main types of protection available, what they cover, and how to think about what your family actually needs.
A mortgage is a secured loan. The security is your home. If repayments stop, the lender has the right to repossess the property. If the primary earner in a household dies and no life insurance is in place, the surviving partner and any children face the prospect of having to sell the family home, or losing it, at the worst possible time.
Even if both partners work and contribute to the mortgage, the loss of one income can make the mortgage unaffordable. Add to this the practical reality of childcare costs, changes in working hours needed to care for children, and the financial impact of grief, and the case for having adequate cover in place becomes clear.
Lenders do not require life insurance as a condition of a mortgage (they require buildings insurance, but life insurance is optional). This means many families take on significant mortgage debt without any protection in place, relying on the assumption that nothing will go wrong.
Level term life insurance pays a fixed lump sum if the policyholder dies within the policy term. The sum assured remains the same throughout the policy, it does not reduce over time. This makes level term insurance suitable for families who want a lump sum that covers more than just the mortgage balance: providing for dependants, replacing income, clearing other debts, or ensuring financial stability over the longer term.
Premiums are fixed for the duration of the policy and depend on the sum assured, the policy term, the policyholder’s age at the start, their health, and whether they smoke. All protection policies are subject to underwriting and individual circumstances will affect the premium offered.
Decreasing term life insurance, sometimes called mortgage protection insurance, is designed specifically to cover a repayment mortgage. The sum assured reduces over time, broadly in line with the reducing outstanding balance of a repayment mortgage. This means the cover remains proportionate to the debt throughout the policy term.
Because the sum assured is reducing, premiums for decreasing term cover are generally lower than for an equivalent level term policy. If your primary goal is to ensure the mortgage is repaid if you die, a decreasing term policy is typically the most cost-effective way to achieve that specific objective.
Unlike term insurance, which only pays out if you die within the specified term, whole-of-life cover provides protection for your entire life. A payout is guaranteed whenever you die, not just within a fixed period. Premiums are higher than for term insurance because the insurer knows a payout will eventually be made.
Whole-of-life cover is most commonly used for inheritance tax planning or to leave a guaranteed sum to beneficiaries, rather than as mortgage protection. For families primarily concerned with covering a mortgage or replacing income during the years their children are dependant, term insurance is usually more suitable and significantly less expensive.
Family income benefit is a type of life insurance that, rather than paying a lump sum on death, pays a regular income to the family from the date of claim to the end of the policy term. This can be easier for a surviving partner to manage: instead of receiving a large sum that needs to be invested or managed carefully, they receive a regular monthly income that replaces the earnings that have been lost.
Family income benefit is particularly well-suited for families with young children, where the need for ongoing income to cover day-to-day living costs is at least as important as clearing the mortgage. It is generally more cost-effective than level term insurance for the same level of annual benefit, because the insurer’s total exposure reduces over time as the remaining term shortens.
Critical illness cover pays a lump sum on diagnosis of specified serious illnesses, such as cancer, heart attack, or stroke, rather than on death. It can be arranged as a standalone policy or combined with life insurance. The conditions covered, and the specific definitions used to determine a valid claim, vary between insurers and must be checked carefully. Not all conditions are covered by all policies, and the exact diagnostic criteria matter.
For many families, the risk of being diagnosed with a serious illness that leaves them unable to work for an extended period is at least as financially significant as the risk of death. Critical illness cover addresses this by providing a lump sum that can clear the mortgage, adapt the home if needed, cover treatment costs, or simply provide financial breathing space during recovery.
Income protection pays a proportion of your income, typically up to 60-70% of your gross earnings, if you are unable to work due to illness or injury. Unlike critical illness cover, which pays a lump sum on specific diagnoses, income protection continues to pay out for as long as you remain unable to work, up to a maximum age or the end of the policy term. It covers any condition that prevents you from working, not just a defined list.
For families who would struggle to meet their mortgage payments and living costs if one partner could not work, even temporarily, income protection provides a sustained safety net that term life insurance or critical illness cover alone cannot replicate.
Couples often ask whether to take out a joint life insurance policy or two separate single policies. A joint policy covers both lives and pays out on first death, after which the policy ends. Two single policies each cover one life and pay out independently, meaning both would pay if both policyholders died within the policy terms.
Joint policies are typically cheaper than two single policies combined. However, a joint policy only pays out once, leaving the survivor with no ongoing cover for the remainder of the original term. Two single policies provide more comprehensive protection, and each can be tailored to the individual’s age, health, and cover requirements. The right structure depends on your circumstances and priorities.
The protection market contains dozens of providers with different underwriting criteria, product definitions, and pricing. For straightforward cases, the differences may be relatively modest. For applicants with pre-existing health conditions, a history of smoking, or occupations that some insurers rate as higher risk, the right provider and the right approach to application can make a significant difference to both the cost and the terms of cover offered.
The Mortgage Consultancy searches the full protection market on your behalf and advises on which combination of products best meets your family’s needs and your budget. Protection products are subject to underwriting and individual circumstances will affect the cover available and the premium charged.
Important: This article is for general information purposes only and does not constitute financial advice. Protection products are subject to underwriting and individual circumstances. The cover available, and the premium charged, will depend on your age, health, lifestyle, and the specific terms of the policy. Always seek regulated advice before taking out any protection product.
Answer a few questions about your family’s circumstances and one of our protection advisers will come back to you with the most suitable options.
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