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Why Landlords Should Consider Mortgage Life Insurance

Last updated: 02/02/2023 | Estimated Reading Time: 8 minutes

For the majority of landlords, handling 100 different tasks and dealing with property maintenance issues is nothing new. In fact, for many landlords, juggling the needs and demands of their various properties is simply considered part of the job.

However, dealing with tenants and having to worry about so many variables on a constant basis can be exhausting. And when you’re spending so much time taking care of multiple tenant and property issues, it’s easy to lose sight of the future and how important it is to prepare accordingly. 

If you’re a landlord who is responsible for looking after loved ones, it’s worth considering what the best possible form of protection is for them. A look into some mortgage life insurance cover can help you be more prepared should the unexpected occur. But what exactly is mortgage life insurance? And what kind of coverage can it offer you as a landlord?

In This Guide:

What is Mortgage Life Insurance?

A mortgage life insurance policy helps your loved ones reduce the financial burdens that can come with the death of a family member, such as mortgage debt payments. And while coverage like landlord home insurance may provide you with some protection for the property you’re responsible for, mortgage life insurance cover provides your beneficiaries with a lump sum to help them clear your mortgage payments in the event of your death. 

While this list isn’t exhaustive, the following may be taken into consideration for this kind of mortgage protection insurance: 

  • Your age
  • Your occupation
  • Your medical history
  • Your health and lifestyle 
  • The amount owed on your mortgage 
  • The term and interest rates of your mortgage 

This kind of life insurance policy tends to be a decreasing term option, meaning the payout reduces over time, much like a standard mortgage payment. Therefore, if you decide to take out a mortgage life insurance policy, and you have a regular mortgage repayment, the coverage would usually be designed to pay your outstanding mortgage balance. It would reduce over time in line with the amount due.

However, just like any standard life insurance coverage, you also have the option to choose a level term policy, which means that your beneficiaries will receive a lump sum payment, regardless of when you pass away. 

Why Should Landlords Consider Mortgage Life Insurance Cover?

When you think about the reasons for choosing a mortgage protection life insurance policy, it’s crucial to begin by reminding yourself why you wanted to be a property owner and landlord in the first place. 

Generally speaking, the majority of landlords invest their time and money into property for one of the following reasons: 

  1. To create a regular stream of income for their family
  2. To invest in several properties and build a strong financial portfolio 
  3. To create a nest egg and financial security for retirement

Unfortunately, it’s possible for all of that hard work and planning to go to waste if you haven’t taken the time to find the right kind of mortgage protection insurance for your specific needs. 

For example, level term policies also provide you with the option of having a larger fixed payout to help your loved ones cover bills beyond your mortgage payments, such as

  • General daily living costs
  • Childcare and education fees
  • Loans, credit cards, and other debts

And if you have an interest-only mortgage plan with a fixed balance, then you may want to consider choosing a level term policy instead, as opposed to choosing a decreasing term plan that reduces payments over time. 

As interest-only mortgage payments only cover the interest, and not the acutal amount borrowed, your overall balance won’t decrease over time. This means that a decreasing term policy wouldn’t suit your needs, as it would be more beneficial for you to have same fixed amount paid throughout the mortgage. 

While each policy is unique due to each person’s specific circumstances, it’s always a good idea to get a policy that can cover the amount owed on your mortgage. Checking recent mortgage statements or discussing your mortgage balance with your lender can give you a clearer idea of what you’ll need.  


What Isn't Covered by a Standard Mortgage Life Insurance Policy?

Finding the right kind of life coverage or mortgage protection is all about knowing what will be covered. But sometimes getting a better idea of the insurance you need also means understanding what you won’t be covered for in any given policy. And that’s where it’s vital to ensure that you know that a mortgage life insurance policy isn’t a direct replacement for a standard mortgage protection or landlord home insurance policy. In fact, generally speaking, a mortgage life insurance cover won’t cover you for things like property damage or theft of contents within a property.  

For coverage that pertains to things like legal protection as a landlord or getting more buildings and contents coverage to protect from storms, crime, and appliances within the properties, then it’s best to explore landlord home insurance options. 

To get extra peace of mind, many policyholders decide to get both landlord home insurance and a mortgage life insurance policy in order to prevent confusion and take advantage of the added protection both policies can offer. 

The Steps to Take When Choosing Your Mortgage Life Insurance Cover

When choosing your coverage, the majority of policies will include the following steps: 

  • You’ll pick the amount of mortgage life insurance cover needed (this is usually the amount that’s owed on your mortgage) 
  • You’ll decide how long you want the coverage for (this is usually the length of your mortgage) 
  • An insurer will take this information and then take your age, health, and other variables into consideration
  • A monthly premium will then be calculated for you to pay in exchange for this coverage 

Other factors in calculating your premium may include any extra additions that you’d like to have on your policy, like critical illness insurance cover. Having this extra level of cover means you’re not only protecting your loved ones in the event of your death, but also ensuring you’re covered in the event of a critical diagnosis or terminal sickness. 

Please Note: Not all insurance providers we work with offer all types of policies. Please do your research and compare quotes before proceeding.

Landlords with several properties needing coverage may also experience an increased premium. And while additional real estate means more income, it also means increased pressure for your loved ones from lenders in the event of your death. Estimating the total value of your property portfolio alongside the amounts still owed on those properties should give you a general idea of how much mortgage life insurance you’ll require. 

Tips on Making the Entire Process Run Smoothly

At this point, if you’re sure that mortgage life insurance is the best way for you to get a little more mortgage protection for your loved ones, consider the following before making any final decisions. 

  • You can take out a joint policy to cover you and your partner. While joint coverage is cost-effective, it will provide just one single payout before the cover stops. Two single policies will cost more but you’ll get two separate payouts in the event of death during those policy terms. Remember - it’s all about what works best for your specific needs.
  • Some providers may offer a choice of reviewable or guaranteed premiums. Essentially, this means deciding between a set premium that never changes (guaranteed) or a premium that costs less at first but continues to potentially increase over the duration of the policy (reviewable). 
  • Your mortgage life insurance policy payouts can become a part of your estate in death. This means that it may be subject to some hefty inheritance tax charges. However, you may be able to avoid these charges by writing the policy in trust when you take out the policy. Doing so enables the insurance to pay out directly to your loved ones, meaning no inheritance tax charges. 
  • Every insurer will have its own rules regarding your medical history and any pre-existing conditions. No matter what, it’s vital to be as open and honest as possible about the information you disclose to them. Failure to do so can cause significant issues in the future and prevent your loved ones from receiving a payout. 

If you don’t want to disclose your health issues and you’re over the age of 50, the majority of over 50s life insurance policies offer a guaranteed acceptance without the need for a medical.

Final Tips and Insights for Finding the right Policy

Taking out some form of mortgage life insurance cover or mortgage protection may come from a desire to help provide a better future for your loved ones, or even at the insistence of your mortgage provider. Either way, taking out landlord home insurance or mortgage life insurance usually has no effect on the interest rates you pay for your mortgage. 

Considering mortgage life insurance means that you’re considering what happens beyond today, and preparing your family for a less stressful future should the unexpected occur. And while a policy won’t pay out should your death be due to drugs and alcohol, suicide, or an act that’s deemed reckless, you can gain that extra peace of mind in life knowing you’ve done your part to provide a little extra security for the people you leave behind.

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