Debts owing by the deceased on death have priority over legacies, so the answer is almost certainly "yes" unless either
- it is a very unusual mortgage agreement (highly unlikely)
- the death in service payment is legally due to spouse or children rather than to the deceased's estate (possible).
The bank, however, cannot simply seze it. It is the duty of the executor or administrator to deal with the bank on this matter. It would be wrong - and very unwise - of an executor to "forget" to make the bank aware the estate has capacity to pay something towards the debt.