Do I need life insurance for a mortgage?
You’re not legally obliged to get life insurance for a mortgage, but some lenders may consider it a precondition for letting you borrow money to buy a home. For the vast majority of homeowners, having financial protection in place makes sense. If you own a property, a mortgage is likely to be the biggest debt you leave behind should the worst happen, so having a policy in place can help give you peace of mind.
Average UK house prices were £230,332 as of February 2020 * – with prices this high, a lot of homeowners will have a mortgage to pay, so it’s understandable that people want to spend any spare income wisely. However, if you have children, a partner, or other dependents living with you who rely on you financially, taking out mortgage life insurance could be considered important expenditure.
Buying a home with a partner
Life insurance is certainly important to consider when buying a house as a couple. If you’re buying your home with your partner, your mortgage repayments could be calculated on the basis of two salaries. If you or your partner died while your mortgage loan was still outstanding, would one of you alone be able to keep up the regular mortgage repayments?
Life insurance can help protect the family home by paying out a cash sum, which can be put towards the remaining mortgage balance if you die during the length of the policy – this is what ‘mortgage life insurance’ usually refers to. Your loved ones can use the payout to help clear the outstanding mortgage debt, meaning they can continue living in your family home without worrying about the mortgage.
Life insurance as a landlord
If you’re buying a home as an investor, or you already own a home and you’re looking to rent it out, you may still need life insurance. This way, you can help cover the remaining balance in the unfortunate event you pass away. You might want to increase your life insurance cover to account for the higher mortgage liability should you refinance your investment property or portfolio. Please note that Life insurance is not the same as landlord insurance, which refers to enhanced coverage for the structure of your home (buildings insurance) and your possessions (contents insurance).
Do I need life insurance if I don’t have a mortgage?
It is a common misconception that life insurance is only relevant to homeowners. While it’s true that renters are less likely to take out life insurance, that doesn’t mean you don’t need life insurance if you don’t have a mortgage. If you’re a tenant, think about the financial impact of the loss of your income if you were no longer around. If you live with your family, could your loved ones afford the rent in your absence? What about other costs like household bills or child care costs if you have a family. In essence, life insurance is always a good idea if other people rely on you financially, it is not just for those with a mortgage.
The types of life insurance we offer
There are two main types of life insurance for a mortgage. The right policy for you depends on your individual circumstances.
Life Insurance – this could pay out a lump sum if you die during the length of the policy, and help your dependents to pay the mortgage (interest only) or help maintain their lifestyle and everyday living expenses.
Decreasing Life Insurance – this is designed to help protect a repayment mortgage so the amount of cover reduces roughly in line with the way a repayment mortgage decreases.
If you do take out Life Insurance or Decreasing Life Insurance you can add Critical Illness Cover to your policy at an extra cost.
Please just remember that these policies are not savings or investment products and have no cash value unless a valid claim is made.
A home is so much more than an asset, and whatever type of life insurance you choose, paying a small monthly premium can help your family carry on living there if you are no longer around.