Life Insurance for Your Mortgage: How Much Cover Do You Need?
At a glance
The amount left on your mortgage is where your figure starts, not where it ends.
Decreasing cover usually suits a repayment mortgage, while level cover suits an interest-only mortgage.
A complete figure also counts other debts, lost income and any cover you already hold.
Revisit it whenever your mortgage changes.
Introduction
Most conversations about life insurance for your mortgage start with how much you still owe. It’s a sensible starting point, but work from that number alone, and you could end up with a policy that clears the house while leaving the household short.
Life insurance isn’t a legal requirement for a mortgage, but a lot of people with a partner or children choose to have it. This guide walks through how much cover you need and how to structure it.
Level vs decreasing life insurance for your mortgage
With a repayment mortgage, the balance falls each month, so decreasing cover is the natural match. The payout reduces broadly in line with what you owe, which usually makes it cheaper than level cover. With an interest-only mortgage, the balance doesn’t fall, so level cover, which pays the same amount throughout, is the usual choice. A part-and-part mortgage can use both, each sized to its portion of the loan.
One detail is rarely mentioned. Decreasing cover doesn’t follow your actual mortgage. It reduces based on an interest rate the insurer assumes, often around 7% or 8%. If your mortgage rate ever rises above that, your balance will fall more slowly than your cover, and a gap could open up, so it’s worth checking the assumed rate at the outset and whenever you remortgage.
How much life insurance do I need? Looking beyond the balance
Clearing the mortgage is often a policy's most important job, but rarely the only one. A more complete figure comes from working through a few steps in turn:
Start with the mortgage. How much is outstanding, and how long is left on the term?
Add your other debts. Loans and credit card balances don’t disappear and usually need to be settled from your estate. A debt you'll pay off within a few years, though, may be better left to savings than built into a long-term policy.
Work out the income you'd lose. This is the step most people skip. If your lender assessed affordability on two salaries, the person left behind may struggle to keep up the payments on one, let alone the rest of the household bills. Childcare often gets more expensive at the same time.
Allow for one-off costs. A funeral is the obvious one, along with some breathing room while the household adjusts.
Take off what's already in place. Savings you'd genuinely be willing to use count here, along with any policies you already hold. So does cover through work, with a caveat we'll come to next.
You may have heard the rule of thumb: ten times your salary. It's a quick reference point, but it can't account for your mortgage or your family's circumstances, so working through the steps above usually gives a more accurate answer.
Bear in mind that life insurance pays out on death, or, with some policies, a terminal illness diagnosis. If illness or injury stops you from working, critical illness cover or income protection can do that job instead, and our guide on why protection should be a key part of your financial planning explains how they fit together.
Where death in service fits
Many employers offer death in service, usually two to four times your basic salary. It belongs in your figures, but it stays with the job rather than with you. Change employers or go self-employed and it usually stops, while your mortgage carries on. That’s why it’s usually sensible to treat it as a welcome extra rather than the foundation of your plan.
Family income benefit: replacing income, not just debt
Lump sums are good at clearing debts but less suited to replacing a salary. Family income benefit pays a regular monthly amount instead, from the point of a claim until the end of the policy term, and the payments are generally not taxed. That means a later claim pays out less in total than an earlier one, which is why it’s often cheaper than a level policy offering the same amount of cover upfront. Many households pair it with decreasing cover, so one policy handles the mortgage while the other keeps the household running.
Putting it together: an example
Here’s how those pieces can fit together for a theoretical household. The figures are for illustration only and aren’t a recommendation.
A couple in their mid-thirties have two children, aged three and six. They owe £240,000 on a repayment mortgage with 25 years left, and their lender based affordability on both salaries. They also have £12,000 of car finance, but with only a few years left to run, it’s the kind of short-term debt that’s usually better handled by savings or existing cover than built into a 25-year policy. One partner earns £38,000 and has death in service at four times salary, which would pay £152,000.
Working through the steps, the cover for that partner might be built like this:
What it's for | Type of cover | Amount |
Clearing the mortgage | Decreasing cover over 25 years | £240,000, reducing with the balance |
Replacing lost income | Family income benefit until the youngest turns 21 | £1,500 a month (£324,000 if claimed in the first year) |
One-off costs, such as a funeral | Level cover | £8,000 |
In the early years, that’s a need of more than £570,000, well above the £380,000 that ten times salary would suggest. The death-in-service payment would sit on top for as long as that partner stays in their job, and nothing in the plan depends on it.
However, because the household relies on both incomes, the other partner’s cover would also need to be worked out. The mortgage could sit on one joint policy, which pays out once, while income cover is usually sized to each person’s earnings.
How long should the cover last?
For mortgage cover, it usually makes sense to match the mortgage term. Family cover may need a different end date, such as when your youngest child becomes independent.
Extending your mortgage term doesn’t extend your policy either, so if you lengthen one, check the other.
When to revisit the number
Your cover is set against your mortgage as it stood when you arranged it, so when the mortgage changes, the cover may need to change with it. The moments worth a fresh look include:
remortgaging and borrowing more, whether for an extension or to consolidate debts
moving home, whether you port your existing mortgage or take out a new one
extending your mortgage term to reduce your payments
switching some or all of the loan to interest-only
your mortgage rate rising above the rate your decreasing policy assumes
a new baby, or a separation
Most of these come up in conversations we're already having with clients about their mortgage, which makes that the simplest time to check the protection side too.
Working out your number with Fowler Smith
There's no single right amount of life insurance for a mortgage, only the right amount for your household. When we arrange your mortgage, we already know its size and term, and how the lender assessed affordability, so the protection conversation starts with real figures rather than guesswork.
Every client also has a dedicated Client Account Executive working alongside their adviser to keep things moving and keep you updated from start to finish.
If you’re also weighing up critical illness cover or income protection alongside your life cover, we can look at how they all fit together in the same conversation.
When you're ready to work out your own figure, get in touch with our team for a friendly, no-obligation conversation.
Frequently asked questions
Is the “ten times your salary” rule a reliable guide to life insurance for a mortgage?
It’s a quick check, but it ignores your mortgage balance and family circumstances. Working out your figure step by step is far more reliable.
Should my life insurance be written in trust?
Often, yes. As MoneyHelper explains, it usually means the payout reaches your family without waiting for probate and sits outside your estate for inheritance tax. Most insurers offer this at no extra cost.
Do I need life insurance on a buy-to-let mortgage?
It depends. The mortgage doesn’t disappear when you die, and your family may need to manage or sell the property. If you hold several properties or have given a personal guarantee, it’s worth a closer look.
As with all insurance policies, terms, conditions and exclusions apply. Your home may be repossessed if you do not keep up repayments on your mortgage. Some buy-to-let mortgages are not regulated by the Financial Conduct Authority.
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