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 £265,668 as of June 2021* – 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.
Life insurance is 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 by paying out a cash sum if you die during the length of your policy, which can be used to help pay the remaining mortgage – this is what ‘mortgage life insurance’ usually refers to, meaning they can continue living in your family home without worrying about the mortgage.
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).
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 salary 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 worth considering if other people rely on you financially, it's not just for those with a mortgage.
Please remember that life insurance is not a 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.