Life insurance

What if the mortgage is paid off?

Do I Still Need Life Insurance After Paying Off My Mortgage?

By
Pirashanth
Published
Last reviewed
Reading time
2 min read

This guide provides general information only. It is not financial advice or a personal recommendation and does not take account of your individual circumstances.

Quick answer

Paying off a mortgage removes one possible reason for life insurance, but it does not automatically make an existing policy necessary or unnecessary. The remaining question is whether a death would still leave anyone with a financial shortfall after taking account of income, savings, assets, workplace benefits and other commitments.

Key figures

removes one liability, not necessarily every financial dependency
Mortgage cleared
should be understood before any change is made because replacement terms may differ later
Existing policy

What changes when the mortgage is paid off?

A mortgage is often one of the largest household liabilities. Once it is repaid, the amount that would be needed simply to clear that debt falls to zero.

But life insurance can have been arranged for more than one reason, so the end of the mortgage does not answer every other financial question. Life insurance explained covers the cover types and terms a policy may have been set up with.

What other financial gaps could remain?

Examples can include:

  • replacing income for a partner or children;
  • childcare or other unpaid work that would need to be replaced;
  • education or other planned family costs;
  • funeral and immediate costs;
  • other debts or commitments;
  • a period of financial adjustment after a death.

Whether any of these create a meaningful shortfall depends on the household's resources.

What existing resources should be counted?

The other side of the comparison can include:

  • savings and investments;
  • workplace death-in-service benefits, which normally end when the job does;
  • pensions or other survivor benefits;
  • other life policies;
  • a partner's or household's continuing income;
  • assets that could be used if needed.

The important point is to compare the remaining financial gap with the resources that already exist.

What if the policy was specifically arranged for the mortgage?

A decreasing-term policy may have been designed to broadly follow a repayment mortgage. If the mortgage has ended earlier than expected, the original reason for that policy may have changed.

That does not by itself determine what to do with the policy. The current terms, cost, remaining cover and any other financial need still need to be understood.

Why changing an existing policy deserves care

A replacement policy taken out later can be priced and underwritten using the person's age and health at that later time. That means an older policy and a new policy should not be assumed to be interchangeable.

Before cancelling or replacing existing cover, understand what would be lost and what the replacement would actually provide.

A factual review checklist

  • Why was the policy originally arranged?
  • How much cover remains?
  • How long is left on the term?
  • What does it cost?
  • What financial dependencies remain now?
  • What workplace or other cover already exists?
  • Would cancelling remove cover that may be difficult or more expensive to replace later?

Frequently asked questions

Sources

Related questions

Need advice about your own circumstances?

General information can't take account of your individual circumstances. If you'd like personalised advice, you can speak to an adviser.

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Pirashanth, who writes What If Guides, also works as a protection adviser. This link takes you to Pirashanth's separate adviser page, and Pirashanth may benefit commercially if you become a client. What If Guides itself does not provide financial advice.