People take out life insurance for a variety of reasons, but perhaps the most common reason for getting life insurance is to cover a mortgage. However, there tends to be confusion regarding whether life insurance is compulsory for getting a mortgage...
Is life insurance compulsory for a mortgage?
The reason there is some confusion is that many mortgage providers insist that the applicant have a life insurance policy in place before the mortgage is approved.
This is because a life insurance policy will add a level of protection to the mortgage - so that if something were to happen to you and your partner was unable to meet the mortgage payments without your income, then the life insurance payout would cover it.
Therefore you don't necessarily need life insurance in order to get a mortgage, but it is likely that some mortgage providers will insist on it to provide financial security. Whether you will need to get life insurance will depend on the mortgage lender and your own personal circumstances, however, it is usually a good idea to take out a life insurance policy when you buy a house.
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Why you need life insurance
It is generally advised that you take out life insurance when buying a house as it protects your family and loved ones if something were to happen to you.
No-one likes to think about death, but when it comes to taking out a mortgage - which is often the biggest financial commitment you will ever make - you need to cover all bases. If your family is dependent on your income then they may be unable to keep up with paying the mortgage if you were to pass away during the mortgage term.
Life insurance provides the peace of mind and reassurance that your family will not struggle financially if you die.
For more information about life insurance and to get a quote, visit our life insurance page.
What insurance do you need when getting a mortgage?
Although your mortgage lender or broker may try to convince you to take out life insurance or other protection insurances, the only insurance you actually need when buying a house is buildings insurance.
This gives the mortgage provider the certainty that the building - and therefore their money - is protected.
Buildings insurance covers the house against any damage that may need to be repaired, and typically only applies to the structural aspects of your home such as the walls, roof, floors, fixtures and fittings etc. To cover the actual contents of your home - electrical items and gadgets, furniture, jewellery etc. then you need contents insurance.
As we have already stated, it is recommended to consider a life insurance policy when buying a house - but that is not your only option when it comes to protecting you and your family.
Life insurance pays out if you die during the term, but what about if you suffer a serious injury or illness which leaves you unable to continue to work? Would your loss of income affect your ability to meet the mortgage repayments each month on top of all the other household bills and expenses?
To protect against the risk of this happening, there are several protection insurance products available such as Critical Illness Cover, Accident, Sickness and Unemployment Cover and Income Protection Insurance.
All of these are largely similar in that they can pay out either a lump sum or monthly payments to help you cover your mortgage payments if you are unable to work and lose your income.
If you use a mortgage broker or adviser to help you find a mortgage, you will likely be offered one of these insurance products as well as your mortgage. Don't be fooled by the sales patter though, as your broker will be pushing certain products to make a commission which may not be the best value product for you.
As with all insurance, if you think you need it do your research and compare prices before you sign up for anything.
Find out more about the following insurance products below:
- Mortgage life insurance
- Income protection insurance
- Critical Illness insurance
- Accident, Sickness and Unemployment Cover
We also have the following guides to help with your research:
- What is a Mortgage in Principle, and do you need one?
- Best life insurance with free gift deals
- What are the different types of income protection insurance?
- 5 ways parents can help their children buy a house
- Is it possible to have joint income protection cover?
- Does income protection insurance cover maternity leave?
- Income protection insurance with pre-existing medical conditions – a guide