Is life insurance necessary for a mortgage?
5 May 2020
Although a lot of people will take out life insurance when they get a mortgage, it’s a common misconception that it is actually mandatory. Your friends and family will probably urge you to take it out as you reach this memorable milestone in your life, but you don’t actually have to.
That being said, it is a very, very good idea to take out life insurance - or some kind of insurance - when you take out a mortgage. Such a big financial commitment deserves to be protected, right?
What insurance is necessary when taking out a mortgage?
Although technically not a legal requirement, mortgage lenders will require you to have buildings insurance as a condition of your mortgage. Buildings insurance covers your home against any structural damage that might need to be repaired. Lenders need to know that you have this insurance in place, because their primary concern is the value of your property.
You may have also heard of the term home insurance. This is a general term used to describe both buildings insurance and contents insurance; two very different types of cover. Whilst buildings insurance is for your permanent fixtures and fitting such as kitchens and bathrooms, contents insurance covers the things you keep in your home, like your furniture, TVs and personal belongings. Contents insurance is completely optional, but it’s definitely a very wise idea to take it out.
Should I take out life insurance when getting a mortgage?
So, back to the matter at hand. Should you have life insurance when getting a mortgage? We would say yes - you ideally need some kind of insurance in place, whether that’s life insurance or mortgage protection insurance.
Put it this way - if something happened to you and you were no longer around to pay your mortgage, it would fall to your beneficiaries. What if they couldn’t keep up the repayments? The consequences of this mean that they may be forced to sell up and move out, which is probably going to be the last thing they need at a difficult time.
The only time when we perhaps wouldn’t recommend having this type of cover in place is if you are single with no dependents. In this case if you passed away, a lender would force your estate to sell the property, repaying the mortgage and thus making any cover redundant. If you are worried about not having cover in place, it would make more sense for a single person to look into income protection, a policy that covers your income if you are unable to work due to accident or sickness.
Having life insurance in general will never be a bad thing. A mortgage applicant with life insurance is a big old ‘tick’ in a lender's eyes. It shows that a person is taking responsibility to protect what will probably be the most prized asset they own - and shows that the loan they’re taking out can still be repaid even if the borrower passes away.
What other insurance could I look into?
You might have heard of mortgage protection. Some mortgage lenders will insist that you have this in place before you move in, whilst more commonly others won’t. Mortgage protection, also often referred to as mortgage life insurance, is designed to cover the remaining cost of your mortgage should you pass away with the loan not yet fully repaid.
Essentially, it is a form of life insurance that is meant specifically to handle your mortgage repayments - which is perfect if that’s one of the things that worry you most about passing away and leaving your family behind. It’s relatively inexpensive and it serves to be the peace of mind that every homeowner needs with the slightly daunting prospect of a mortgage to pay at the back of their mind.
Still have questions? Just get in touch with a member of our wonderful LifeSearch team on 0800 316 7253 - there will be someone on the other end of the phone waiting to help you get the cover that you want and need.