Do You Need Life Insurance When Buying a House?

If you are in the process of getting a mortgage or starting out on your property buying journey, you may be wondering “do you need life insurance for a mortgage?” Unfortunately, some mortgage brokers package up mortgage deals with life insurance and hint that it is a requirement for the mortgage.

Life insurance is vitally important for most house buyers, but you should not feel obligated to take it. Life insurance is not a mandatory requirement for mortgage lenders and the only insurance they will stipulate you have is buildings insurance on your house.

Why is life insurance so important when buying a house? Let’s explore protection insurance further.

Do You Need Life Insurance to Get a Mortgage

No, you do not NEED life insurance when buying a house with a mortgage, although it is highly advisable you have a full discussion with your mortgage broker about protection insurance.

Protection insurance encompasses a range of insurance policies including life insurance, critical illness cover, family protection and income protection.

When taking a mortgage, life insurance is a particularly prudent policy to take as the debt does not pass away with you. If you are taking a mortgage as a sole purchaser, your mortgage debt will go into your estate. On a joint basis, the mortgage liability will continue if you die, but with only one person’s income left to cover the cost.

For this reason, life insurance that matches your mortgage liability is a great idea as if the worst happens, your next of kin or partner will be able to pay off the mortgage and keep the property.

What Life Insurance Do You Need for a Mortgage?

Life insurance is one of the cheapest protection insurance policies as the likelihood of you passing away while you have the mortgage is much lower than getting seriously ill.

You will find monthly premiums for life insurance when buying a house are cost effective compared to the level of cover with life insurance.

The chances of you becoming ill with a serious or critical illness during your mortgage term are much higher. As a result, you will notice the premiums are higher for this type of policy.

Critical illness cover can be arranged flexibly to meet your monthly budget. You might opt to cover off a years’ worth of mortgage payments or a portion of the mortgage instead of the full amount. Having the cover allows you to concentrate on recovery without the ongoing concern about paying your mortgage.

Income protection covers you if you are unable to work due to illness for a period of time. Again, this policy can be tailored to your needs. For example, NHS employees have a generous sick pay package that includes six months at full pay and six months at half pay. In this example, you could arrange the policy to cover you after this period and find it is relatively inexpensive.

Can You Get a Mortgage Without Life Insurance?

Yes, you are perfectly able to get a mortgage without life insurance.

Life insurance is not designed to cover a lender’s risk. It is primarily to help you cover your own risks and give you peace of mind that should the worst happen, you and your family will not be subjected to financial hardship.

Remember, lenders are operating a business, and they will expect the mortgage to be repaid come rain or shine. That means if you get seriously ill, are unable to work and cannot make your mortgage payments – a lender can repossess your property.

Often, it is the most difficult circumstances that lead to a repossession and protection insurance gives you the peace of mind that should something terrible happen, the situation will not be exacerbated further by losing the roof over your head.

Do I Need Life Insurance if My Mortgage is Paid Off?

Potentially yes. So, why do you need life insurance for a mortgage that’s paid off? It largely depends on your personal circumstances.

For example, you may have no mortgage but still provide the bulk of the income to your household. If you pass away, would your family be able to maintain the monthly bills and their lifestyle? Would that loss of income cause hardship?

Once again, protection insurance is constructed to cover off risks to you and your loved ones. While an insurance payout will not replace the great sense of loss your family will feel, it will in most cases allow them to grieve without financial worries looming over them.

Speak to a Specialist Protection Broker

No one likes to talk about dying or getting seriously ill. It is much easier to put such thoughts to the back of our minds and hope we are one of the lucky ones who live in perfect health until old age.

You might be surprised at the sheer volume of claims paid out by protection insurance companies each year. These claims alone demonstrate that no one is risk free.

Discussing your personal situation with a specialist protection broker like Boon Brokers will allow you to understand where your risks are and the financial shortfalls you may have. We can help you understand what life insurance do you need for a mortgage and answer any questions you may have.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Broker. Boon Brokers provides fee FREE advice.

Contact Boon Brokers to discuss the range of protection products available to you today.