it depends who took out the life insurance. Just because it is against you dying doesnt mean that you (or your estate as you are dead) is the benificiary.
assuming you are then its easy because it will form part of your estate and you can chop that up in your will to your hearts content. you can give £1 to everyone in the street if you like.
however, chances are your mortgage already has some sort of insurance on it that pays it off in the event of one or other of your deaths, so check out the wording because you may not have to worry about covering that at all.
however, do worry about the cost of your funeral - could easily be 2,000 today. and also check the fine print on the mortgage policy because they have been known not to pay out in the event of the death of the 2nd income person because they are not the "main" wage earner.
my granny did something a bit handy with her will, she put her entire estate in trust and my grand-dad got the interest every year. when he died the trust fund was then hived up amongst the kids, so he wasnt left high and dry, but couldnt re-marry and leave all her money to his new wife with the kids getting nothing.
maybe some sort of reciprocal arrangement with each others wills so that the surviving partner is looked after but long term the kids still see the money??