Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
Quickfire Roundup:
Mortgage life insurance isn’t a must, but it could still be a good idea.
Mortgage life insurance can give you peace of mind knowing that you’re clearing what is perhaps one of your biggest debts, rather than leaving it for your family to deal with.
However, if you have other debts too, a different life insurance policy may be more appropriate. This would clear your mortgage and debts that you may have elsewhere.
When you buy your first home, you suddenly have a whole host of new responsibilities, as well as expenses. One thing that people often wonder is do you need life insurance for a mortgage.
While younger people may not want to think about the consequences should the worst happen, the reality is that this is something that needs a great deal of thought.
Should the worst case scenario happen, and you pass away during the mortgage term, you need to think about those who would be left behind.
If you have children and/or a surviving partner, you need to be sure that mortgage payments aren’t a concern for them while they’re dealing with their grief. This is where mortgage life insurance comes in.
I’m going to explore the options around insurance policies that can cover your mortgage repayments, and if they’re something that you really need.
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
Table of Contents
Do you need life insurance for a mortgage?
There is no legal requirement to buy life insurance that covers your mortgage. However, the lack of any legal requirement doesn’t mean that it’s something that should be ignored.
Some lenders will insist that you take out some level of cover, just as they insist that you take out buildings insurance.
The minimum cover they’ll require is that which will clear any outstanding balance on your mortgage. Not every mortgage lender will insist on this, but there are still other considerations.
A major reason to think about life cover that covers your mortgage balance is family.
If you have loved ones living in your family home, you want to make sure that they have the financial support that they need and that they’re not left worrying about mortgage debt and keeping a roof over their heads.
So, what is mortgage life insurance?
If you look at a typical life insurance policy, this will pay out money if you die during its term.
A mortgage life insurance policy is a particular kind of life insurance cover that is designed to clear any outstanding debt linked to your mortgage.
The pay out amount will at least clear your mortgage balance and ensure that loved ones aren’t left worrying about mortgage repayments.
Taking out cover will certainly give your lender a greater feeling of security and will give loved ones and family peace of mind.
However, if you have other outstanding debts to consider, your family may benefit more from life insurance policies that cover more than just the remaining mortgage.
The different types of mortgage life insurance
There are different types of mortgage life insurance policies to consider. The one that will suit you best will depend on whether you have a repayment mortgage or an interest-only one. Let’s take a look at the options:
Decreasing term insurance policies
If you have a repayment mortgage, decreasing term insurance is the kind of policy that is designed to offer you the financial protection you need.
This kind of insurance for a mortgage pays out less as time goes on. That’s because the amount that you owe drops with the monthly payments you make towards your mortgage.
What is paid out is a lump sum that’s sufficient to clear what’s outstanding.
Level term life insurance policy
A level term life insurance policy is suitable for interest-only mortgages. While making mortgage repayments, you’re paying the interest.
That means the mortgage balance stays the same so a higher payout is needed from your mortgage life cover. The lump sum pay out amount clears the same amount of money that was borrowed.
This means that you can expect higher monthly premiums when compared to decreasing term insurance policies.
How much does mortgage insurance cost?
The cost of life insurance polices to clear your mortgage will depend on a number of factors.
The monthly cost that you pay for a mortgage life insurance policy is known as the premium. You may find that you pay higher premiums if you have pre existing medical conditions. You’ll also find that a smoker will end up paying more than a non smoker to get cover.
Despite popular belief, this type of cover shouldn’t be any harder to get for anyone who is self employed.
The thing to remember with this type of insurance for a mortgage is that it’s similar to other life insurance policies in that younger people who are fit and healthy will find themselves paying lower monthly premiums. That means the sooner you act, the cheaper it will be to bring peace of mind to your loved ones.
What about critical illness cover?
Critical illness cover is a type of insurance that pays out if you have an illness that is listed in your policy.
If you are diagnosed, you’re able to receive a lump sum pay out that can be used to clear your mortgage.
You can add this cover to your mortgage life insurance policy or arrange for a policy elsewhere.
How does income protection insurance fit in?
Income protection insurance pays out when you’re ill and unable to work. This can be a great option for the self employed who aren’t able to tap into company sick pay.
It helps to cover your monthly payment for your mortgage, and other expenses by providing regular income until you are fit to work again.
Why wouldn't I need life insurance for my mortgage?
If you are single and don’t have a family to worry about, then you may not need life insurance to cover your mortgage repayments.
However, it’s worth bearing in mind that circumstances change and that you may well find yourself with a family in the future.
Setting up your policy now means that you can relax later knowing that the family home and your loved ones are covered.
Boon Brokers are one of the UKs leading online mortgage brokers. They have a 5-star excellent Trustpilot rating with over 543 reviews.
- No mortgage fees
- Whole of market access
- Free online consultations
- Directly authorised by the FCA
- No in person meet ups
FAQs
What happens if you can't get life insurance for a mortgage?
Most lenders do not require it so not all is lost. It’s not a legal requirement but some lenders will enforce it as it de-risks their loan to you somewhat.
I would consult with your mortgage advisor letting them know that you won’t be getting life insurance so they know that when searching for suitable mortgage products for you.
Is it worth paying life insurance?
If you want coverage for you and your family should you die or fall critically ill then yes, life insurance is the best way to do this.Â
Whether its worth it is entirely dependant on the benefits and coverage of your policy. It’s vital to shop around and get the best deal available on the market.
What are the disadvantages of life insurance?
There are two main disadvantages to life insurance and they are cost and coverage. Life insurance is not cheap and is even more expensive when you are covering both you and your spouse.Â
When it comes to coverage the disadvantage could be you fall critically ill for something that wasn’t listed on your policy and therefore you are unable to make a claim even though you’ve been paying it regularly.
What does Martin Lewis say about life insurance?
Martin Lewis says that life insurance is not a necessity but that cover can help both you and the lender feel more comfortable.Â
He goes on to say if you are seeking cover make sure you’re covered for a wide array of critical illnesses and also as much of your mortgage as possible.
Final thoughts on do you need life insurance for a mortgage
You may find that your mortgage provider tells you that you need life insurance for the mortgage term.
However, even when this isn’t the case, it’s still worth looking into what this cover provides. Full cover can see your family home protected should the worst happen.
When looking for the right cover for you, remember that your specific circumstances will impact the monthly premiums.
As with any other financial product, it’s always worth getting multiple quotes to ensure that you’re getting the best deal.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
