Do You Need Life Insurance for a Mortgage?

Buying your first home (or a home at any time) can be such a wonderful, yet complicated process. You now have your own space that you can be proud of, but you also have a lot more responsibility for the people around you and a lot more questions you want to know the answer to.

It may be helpful to know before we get into the details that there is no compulsory law that states you must have a life insurance policy in place to protect your mortgage, but it can certainly be helpful - and we’ll get into all of the ways it can be beneficial today.

As with a lot of insurance, it comes down to personal preference, but we’re going to cover everything you need to know here so you can make your own decision on whether you think it’s worth it or not for you going forward. 

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Do I Need Life Insurance for a Mortgage?

In regards to whether or not you need life insurance for a mortgage, the short answer is no, you’re not legally required to have life insurance. Although it may be recommended by lenders and peers around you, it’s not an absolute must for you to have. 

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When Would It Be Useful?

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Do I Need Life Insurance If I Don’t Have a Mortgage?

There is no legal obligation for you to have life insurance without a mortgage, but even without owning a home, there may be reasons why life insurance could be important to you. As an example, if people are financially dependent on you, this could be just one of many reasons you may need it.

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When Would It Be Useful?

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Different Types of Insurance for Mortgages

Here are some of the most common types of life insurance people look at taking out when considering it for a mortgage:

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#1 Mortgage Life Insurance 

The most common type of life insurance for a mortgage is mortgage life insurance (or you may know as mortgage protection). These come in a few different forms, such as decreasing term insurance and level term insurance:

• Decreasing term insurance - Specifically for repayment mortgages, so the amount of cover you receive will decrease in line with how your repayment mortgage decreases.

• Level term insurance - Better for interest-only mortgages, as the amount you cover stays the exact same over time. The agreed lump sum payment would’ve been decided when deciding on the policy. 

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#2 Critical illness insurance

Critical illness cover isn’t life insurance, so it won’t cover you or your loved ones if you were to unfortunately pass away. However, critical illness cover, as we discussed earlier, is a lump sum of cash used to pay off your outstanding mortgage balance if something life-altering (covered by your policy) affects your ability to earn any income. 

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#3 General Life Insurance

A general life insurance policy can also cover the costs of your mortgage, if you choose correctly. It can also be used to clear debt, help those dependent on you, and generally just provide overall financial cover to those closest to you. 

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#4 Buildings Insurance

This is the type of insurance that mortgage providers insist you take out legally. This is because building insurance covers their investment (and should also protect you) if your house is damaged or destroyed completely. Make sure to read the terms and conditions.

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