Putting a mortgage protection policy in trust is a choice rather than a rule. A trust sends the payout to trustees, who hold it for the people you name, instead of to your estate. Who owes the loan, whether the cover is joint and what your lender has asked for decide whether that suits cover meant to clear a mortgage.

Your loan and your policy can be read side by side by an FCA-authorised broker; this page's form sets up the free call-back, and you pay nothing for it.

Trust, lender assignment or neither: what are the choices?

Mortgage protection is term life cover set up around a home loan; decreasing cover, which Scottish Widows says is typically chosen to protect a repayment mortgage, falls over the term (how mortgage life insurance works). When you die, the insurer needs to know whom to pay, and there are three broad answers.

Scottish Widows sets them out in its policy provisions (60800B 08/26). Its table of who is paid on a death claim runs like this:

Arrangement in placeWho Scottish Widows pays on a death claim
Nothing, one policyholderThe executors or estate administrators
Nothing, two policyholdersThe surviving policyholder
Beneficiary nomination, one policyholderThe nominated beneficiaries
A trust or an assignmentThe trustees, or the assignee

That table is one insurer's. LV= names both routes side by side. Its policy conditions (document reference MIMILP16) say that if you want a claim paid to "another person or company (such as a family member or mortgage lender) you can transfer your policy to them – this is called ‘assigning’ it, or you can place it into a trust."

What would a trust change for cover that is meant to clear the loan?

A trust changes who receives the money and how fast, not how much. Aviva's guide to trusts (EDCO0853 0126) says that without a trust the benefits are payable to the estate, so the insurer would wait for a grant of probate or letters of administration, which "can take several months". With a trust the trustees claim directly.

The size of the payout is untouched. Zurich warns in its Life Protection key features (NP720500009 02/25) that with decreasing cover "the cover amount might reduce faster or slower than your repayment mortgage or loan", so what it pays "might be more or less than the amount you owe". A trust does not close that gap either way.

Tax is the other reason people ask. LV= defines an estate as everything you own "less any debts you owe (for example a mortgage or outstanding credit card bill)", and says a policy written in trust "will not normally be included in your estate". That is the general position and tax rules can change, so it is not tax advice; the detail sits in whether life insurance is taxable in a trust and whether it needs to be in trust at all.

Once the money is in a trust, the trustees can only do what the deed allows, and the settlor can leave guidance in a letter of wishes (Legal & General's Survivor's Discretionary Trust guide, W13397 09/2023). If the payout is meant for the mortgage, the choice of trust type, trustees and wishes is where that intention is recorded; how to put a policy in trust covers the forms. How a particular insurer's deed would treat money earmarked for a loan can be explained by the broker on a free call-back.

How does assigning the policy to a lender work?

Assignment moves ownership of the policy itself. LV= says you can only do it before a claim is made, that you "can’t change who the policy is insuring, just the owner", and that "It’ll be your responsibility to make sure the policy has been assigned or placed in trust correctly – otherwise it won’t be valid, so you may want to talk to a solicitor or a financial adviser first."

The route can be closed off. Scottish Widows says that "Beneficiary nomination will prevent your policy being assigned to a third party, such as a mortgage lender", and that nomination can be overridden by placing the policy into a trust that excludes you and your estate from the benefits. If you have named beneficiaries, see changing a life insurance beneficiary first.

Whether your own lender asks for an assignment, accepts a trust or wants neither is a question for the lender and the mortgage offer, and whether a lender requires life cover at all is covered separately. If you would like your policy wording checked against what your lender has asked for, a broker can work through both on the call that follows this page's form, without charge.

Can a joint mortgage protection policy be put in trust?

It can, with both policyholders' agreement; Aviva's guide to trusts says both owners must consent. For a mortgage in two names, the point to weigh is that some insurers already pay the survivor without a trust: Scottish Widows says that if one of two people covered dies it will "normally pay out to the person who is still alive."

So on joint cover the real question is whether the payout should go anywhere other than to the surviving borrower. Aviva and Legal & General both publish survivor trusts written for joint policies; how each treats the survivor, and what happens on the second death, is set out in joint life insurance in trust.

Who is the money for: your lender, a co-borrower or your family?

Worth settling before you sign anything:

  • Who needs the money, and is it the same person as the borrower? A co-borrower who survives may be in a different position from a child who inherits the house.
  • Does your insurer's trust form fit the policy? Some survivor trusts are written for joint policies only, so check which form matches yours (life insurance trust options).
  • Who will the trustees be, and will they know what the money was meant for? (choosing trustees)

The mortgage cover guides cover the product itself.

Frequently asked questions

Can a trust be cancelled if the mortgage is repaid early?

Not on Aviva's Survivor Trust form, which says "Once a trust has been set up, you can’t cancel it", so the trust stays in place even if the loan is cleared early. Other insurers' deeds set their own terms, so read the one you would sign.

Can I put mortgage protection in trust after the policy has started?

Some insurers allow it. Legal & General says its Flexible Trust Deed can be used for existing policies, and LV= says a transfer or trust must be in place before a claim is made.

Does a trust mean my lender is paid first?

Not automatically. On Scottish Widows' claims table a trust means the insurer pays the trustees, who then act under the deed, while an assignment means the assignee is paid. LV= lists both routes for a claim meant for someone else, with a mortgage lender among its examples. Whether your lender wants either is for it to say, and a broker can go through what it has asked for alongside your policy.

Weighing a trust against a lender assignment for your own policy? A call-back requested with this page's form lets a broker set out what each route would involve.

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