Trustpilot
Show More

Ask an Expert

What’s the difference between life insurance and mortgage protection insurance?

If you have a mortgage, you may have considered what would happen if you can’t make payments. For peace of mind, many people put provisions in place so that if something should happen to them, the debt doesn't fall on the shoulders of their loved ones.

Two of the most popular ways of doing this are life insurance and mortgage protection insurance. However, they are two distinct products offering separate types of cover. So, what exactly is the difference? And which type of policy is better for me?

Life insurance

Life insurance, as it sounds, is a type of policy that pays out when you die. It’s designed to provide for loved ones and can be used to cover a range of situations. This could be funeral expenses, general living costs or debts.

While mortgages naturally fall into this, your standard life insurance isn’t always going to be the best option. Many people instead decide to opt for what is known as decreasing life insurance.

These policies are tied to a certain financial obligation, with premiums and subsequent payouts decreasing over time, in line with the amount of money you owe. This means that you never overpay, but can still rest assured that your debts are taken care of whatever happens to you.

Mortgage protection insurance

Whereas life insurance covers you if you die, mortgage protection insurance is a form of income protection.

When you take out these policies, you will work out with an insurer what percentage of your salary is spent on your mortgage. Then, if you are unable to make payments the insurer steps up to make the payments.

Different policies will cover different situations. Generally, they are split into accident and sickness, unemployment or both. 

Related guides

Gifting Money to Children and Grandchildren Explained

While most people plan on gifting money to children and grandchildren after they die, increasing numbers aren’t waiting to pass on their wealth. In fact, according to a recent study by sunlife.co.uk 25% of over-50s have given substantial cash gifts to family members in the last five years.These early inheritances - averaging £20,000 - are given to commemorate special occasions, cover education and expenses, and, overwhelmingly, to help the recipients purchase homes. As house prices have risen, getting on the property ladder has become harder.For many people, gifting money while they’re living is a means of avoiding some inheritance tax. This is levied at 40% on the value of an estate over £325,000. But gifts can also be taxable, and you’ll have to be savvy to avoid paying unnecessary taxes when bestowing money on your loved ones.

Family Life Insurance

Family life insurance provides essential financial protection for your loved ones in the event of your untimely death. A life insurance policy ensures that your family can meet their financial obligations, maintain their standard of living, and cope with expenses such as mortgage payments, education costs, and daily living expenses. Without such coverage, families may struggle to sustain their current lifestyle and fulfil their long-term financial commitments.

Life Insurance and Coronavirus: Am I Covered?

As more is known about the novel coronavirus and how it impacts our health, more is known about how life insurance policies are impacted by the virus. Luckily, insurance companies treat a COVID infection like any other medical condition, and will pay out accordingly.