Life insurance
Life insurance pays out if you die during the policy term, so your mortgage can be repaid and your family protected. It’s the foundation of responsible borrowing — and inexpensive to put right.
What it covers
Life insurance pays a lump sum to your dependants if you die during the term. Set up alongside a mortgage, it ensures the loan can be cleared so your family isn’t left with the debt or at risk of losing the home.
Decreasing cover can track a repayment mortgage balance; level cover stays fixed and is often used for interest-only or family protection.
Why it matters for contractors
Without employer death-in-service benefit, an independent professional’s family has no automatic safety net. A modest monthly premium removes the risk that a mortgage outlives the breadwinner’s income.
- Decreasing cover to match a reducing repayment mortgage.
- Level cover for interest-only or to leave a fixed sum.
- Cover can be written in trust so it pays out quickly and outside the estate.
Getting it right
- Match the cover type and term to your mortgage.
- Consider writing the policy in trust.
- Combine with critical illness if you want both in one plan.
Decreasing or level term?
Decreasing term cover steps down year by year, shadowing the way a repayment mortgage balance falls. The sum the insurer might have to pay shrinks as the term runs, and the premium reflects that — which makes it the economical choice when clearing the loan is the entire objective.
Level term holds the payout constant from first day to last. Pair it with an interest-only mortgage, where nothing is being repaid along the way, or use it when you intend to leave behind more than a discharged debt. Ask which mortgage you have and what you want the money to achieve; those two answers settle it, and they are worth settling deliberately rather than inheriting from a comparison table.
How much cover, and for how long?
The outstanding mortgage is the usual starting point, because clearing it means the household keeps the home without a payment nobody can now meet. Beyond that, people add cover for other debts, the cost of raising children to independence, and a period of replaced income so the family is not forced into immediate decisions.
On term length, a common approach is to run the policy at least until the mortgage ends, and often until children would be financially independent. Cover generally costs less the younger and healthier you are when you take it, so deferring the decision rarely makes it cheaper.
Write it in trust
Placing a life policy in trust means the payout goes directly to the people you name rather than forming part of your estate. In practice that usually means the money arrives faster, without waiting for probate, and it can have implications for inheritance tax.
It is normally straightforward to arrange at the point the policy is set up, and considerably more awkward afterwards. Many people never do it simply because nobody raised it — which is exactly why an adviser should. Directors should also compare the company-paid route before defaulting to personal cover; relevant life cover sets out how that works.
Life insurance, answered
How much life insurance do I need?+
Enough to clear the mortgage at least, and ideally to support your family’s living costs too. The right figure depends on your debt, income and dependants — we help you work it out.
Should my policy be written in trust?+
Often yes. Writing life cover in trust usually means it pays out faster and outside your estate, which can help with inheritance tax. It’s simple to set up at outset.
Level or decreasing cover?+
Decreasing cover follows a reducing repayment mortgage and is cheaper; level cover stays the same and suits interest-only mortgages or leaving a fixed legacy.
What happens to my mortgage if I die without cover?+
The debt does not disappear. It remains secured against the property and forms part of your estate, so your family either continues paying it, repays it from other assets, or sells the home. Life cover sized to the outstanding balance is what prevents that last outcome, which is why lenders raise it and why most people arrange it alongside the mortgage.
Do I still need life cover if I have death-in-service?+
Contractors usually do not have it at all, which is part of the point. Even where some cover exists through a contract or an umbrella arrangement, it typically ends when the engagement does and is rarely sized against your mortgage. Cover you own yourself moves with you between contracts, which matters when your working arrangements change every few months.