Do you need life insurance to get a mortgage?
There’s a lot of questions surrounding this topic but one of the main questions around life insurance and mortgages, is do you need life insurance to get a mortgage?
Do you need life insurance for a mortgage?
Put simply, taking out life insurance for your mortgage is not a legal requirement. But there are a few different circumstances in which a life insurance policy could come in handy.
Some countries such as France, Spain, and Morocco, require you to take out life insurance when you get a mortgage but the UK is not one of them.
Are there any instances where mortgage insurance is compulsory?
A lot of it depends on your lender. Some lenders still have a requirement for certain borrowers to have a life insurance policy in place. Some lenders may consider it compulsory if there are credit risks. But you can always consider alternative lenders!
Why would you need life insurance for your mortgage?
Whether it’s your first house or your second, there are several reasons why a life insurance policy may be a good idea.
The main reason any of us get life insurance in the first place is to financially protect our loved ones and this is no different when it comes to getting a life insurance policy for your mortgage.
If a valid claim was made on your mortgage life insurance policy, it pays out a tax-free, cash lump sum to your beneficiaries (the loved ones you want to receive the money). The pay-out could help make life easier for your family during the difficult period of time that would follow, if the worst were to happen to you.
What happens to your policy when you have paid off your mortgage?
The length of your policy term will always be tailored to the length and type of mortgage you have, so that your cover runs alongside it and covers the exact amount you borrowed.
The way a decreasing term policy works is, the amount you’re covered for will decrease inline with the balance of your mortgage. As a result, when you have paid the full balance, your policy should come to an end at the same time.
If you have an interest-only mortgage, you’ll need a level term insurance policy. The amount you’re covered for with this life cover won’t decrease throughout the mortgage term and will pay out the cash sum, if the worst were to happen.
What if you have more than one property?
If you have more than one property, the likelihood is you’ll also have more than one mortgage. If this is the case, having a life insurance policy to protect all of your mortgages would be the safest option.
The more debts you have, the harder it could be for your loved ones after you’ve gone. If you have gaps in your finances that aren’t covered by your life insurance policy, your family could be left struggling to pay these debts if the worst suddenly happened to you.
Is mortgage life insurance different from building insurance?
A decreasing term life insurance policy covers the remaining balance of your repayment mortgage, whereas, buildings insurance covers the cost of repairing damage to the structure of your property.
Buildings insurance is typically compulsory if you are planning to buy your home but a mortgage protection policy is not a requirement when buying your home.
Do you need mortgage insurance if you have no dependants?
Having dependents doesn’t always mean having children - a dependant could be anyone who relies on you financially. This could be your partner or even another family member.
If any of your loved ones could be left with the financial burden of paying the remaining balance on your mortgage then this cover is definitely something that should be on your radar.
How we help
At Busy Bee, we look at your circumstances, find out more about you and your needs and as a result, we can help you take out the right life insurance.
With over 200 years combined experience in the industry, we have the tools and experience to be able to search through the UK’s leading life insurance providers so we can find the cover that’s right for you and your family.