Do I need life cover with a mortgage?

What is life cover?

Life cover — sometimes called life insurance or life assurance — is a policy that pays out a lump sum if you die during the policy term. If you have a mortgage, that lump sum can be used to pay off the outstanding balance, meaning your family keeps the home without the burden of monthly payments.

It's one of the simplest types of cover to understand: you pay a monthly premium, and if the worst happens, your family gets the money. If you reach the end of the term and you're still alive (which is the outcome everyone wants), the policy simply ends.

Why it matters when you have a mortgage

When you take out a mortgage, you're committing to decades of monthly payments. If you're buying with a partner, you've probably worked out the budget based on both incomes. Now imagine one of those incomes disappearing overnight.

Could your partner keep up the mortgage payments on their own? Could they cover the bills, the food, the childcare? For most people, the honest answer is no — or at least, not comfortably. That's the gap life cover fills.

The two main types

Joint or single policies?

If you're buying with a partner, you have two options:

• Joint policy — covers both of you but only pays out once (on the first death). Cheaper, but the surviving partner has no cover left.
• Two single policies — each of you has your own policy. Costs more, but both partners are covered independently. If one dies, the other still has their own policy in place.

I usually recommend two single policies for couples. The cost difference is often smaller than people expect, and the protection is significantly better.

How much does it cost?

Less than most people think. Here are some rough examples to give you an idea:

What about death in service from my employer?

Many employers offer death in service benefit — typically 2-4 times your annual salary. That's helpful, but there are important things to know:

• It's tied to your job. Leave, get made redundant, or retire early — it disappears.
• Your employer can change or remove the benefit at any time.
• It might not be enough to cover your full mortgage, especially in the early years.
• It usually only covers death, not serious illness.

I always check what your employer provides as part of the financial risk review. Sometimes it's enough. Often it's not. Either way, it's worth knowing for certain rather than assuming.