No, life insurance does not have to be associated with a mortgage - but it makes good sense.
Whilst there is no legal requirement to protect a mortgage with life insurance, some mortgage lenders insist that your mortgage is covered with lif insurance. This ensures that it the policyholder were to die whilst the policy was in force, the mortgage would be fully repaid. To us, and indeed most homeowners, this makes good sense!
If you have a repayment mortgage you need a life policy which reduces the value of cover each year to reflect the reducing balance on your mortgage. This type of policy is known under a few names such as Mortgage Life Insurance, Decreasing Term Life Insurance and Mortgage protection Insurance - but despite the various names, they all mean the same thing!
If you have an Interest Only Mortgage, then the amount you owe your mortgage lender remains constant as you are only paying interest each month. In these circumstance, you need Level Term Life Insurance. This is the standard form of life insurance and the value of the cover remains constant.
By the way, if you are using life insurance to protect a mortgage, you do not need to pay for the policy to be Index Linked. The sum you owe on your mortgage is unaffected by inflation so Index Linking is unnesessary.
Mortgage protection apart, life insurance is also an important aspect of protecting the family in the event that a income provider were to die. For that reason lots of life insurance policies are sold completely unrelated to a mortgage as they provide a tax-free lump sum - so important for family or relatives if the worst were to happen.
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