Mortgage life insurance is a type of life insurance designed to cover an amount outstanding on a home loan. In this sense it is a mortgage-linked life insurance policy. Most policies are taken out on a decreasing term basis so that the level of insurance cover declines over time to mirror the amount outstanding on a repayment loan. This type of policy is often called ‘decreasing term insurance’ as the amount outstanding declines over the ‘term’ of the policy.

Given that this type of life cover is purchased to cover a specific exposure (namely a mortgage loan) there is the need for an increased amount of flexibility. Insurers understand that the housing situation of an individual can change markedly over time. For example, it is very common for individuals to move house when they get married or start a family. Following such changes in circumstances the current life policy they hold may be outdated. As a result, mortgage life insurance policies often include flexibility options so that certain policy details can be changed with no need for additional medical underwriting.

The most common option is for moving house or making home improvements. If the policyholder borrows additional money to move house or make home improvements then the sum insured under the policy can be increased without further medical underwriting. It is usually necessary to alter the policy within three months of borrowing the additional funds. The second major option is called a separation option. This option allows the holders of a joint policy to separate that policy into two separate policies with no additional underwriting should the couple part ways. Finally, some plans allow for the sum insured and term of the policy to be altered after the birth of a child.