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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

Cancelling a Life Insurance Policy

There are a variety of reasons for which you might want to cancel your life insurance policy, but it is not a decision you should take lightly. Not only will cancelling your policy obviously mean that you lose the protection it gave you and your family, but also you might find that if you choose to take out another policy in the future, it could end up costing more than your initial one did.We’ll go through some of the main reasons why people tend to cancel policies and how to do so if you choose to.

Life Insurance for the Self-Employed

Being self-employed comes with a unique set of challenges and risks, but it can also be an incredibly rewarding path to take. People who work for themselves need to accept a great deal of uncertainty, particularly when first starting out. It can often be difficult to predict how your income could change and there may be a limited budget for things like holiday and sick pay.However, self employment doesn’t mean that your family has to suffer with the uncertainty of what they would do for money after you die. Self-employed life insurance can help to give both you and your loved ones the peace of mind that comes with financial security.

Pension Term Assurance

Until the end of 2006, pension term assurance was available as a form of life insurance that could be bought as part of a pension plan complete with the associated tax breaks.While this kind of policy is no longer available to new customers, those with such policies active are still entitled to continue them, and to enjoy the tax advantages they come with.