Do you need life insurance for a mortgage?

Life insurance is a way of financially protecting your loved ones in the event of your death. There’s a vast selection of types available and they often have very specific purposes, such as life insurance for mortgages – which is simply an insurance policy that pays off the remainder of your mortgage should you pass away before the end of the term. But do you really need it? Let’s take a look.

Can you get a mortgage without life insurance?

Yes, it’s perfectly possible to get a mortgage without life insurance. Having a policy is not a legal requirement and some people simply don’t need it – such as those who don’t have any dependents – which can make it an unnecessary expense.

Yet while it isn’t compulsory, for most people it’s strongly recommended to have a suitable life insurance policy, particularly those with a family. Indeed, some mortgage lenders will insist you have this in place before you move in.

Why would you need life insurance for a mortgage?

For nearly everyone, buying a home is the single biggest financial commitment they will make. At the start of your mortgage, you will owe your mortgage lender anything up to 100% of the purchase price of your home, most likely amounting to tens or hundreds of thousands of pounds. What would happen if you died before you paid it off?

If you have a joint mortgage and didn’t have life insurance in place to cover the amount, the bank would look to your surviving mortgage partner to repay the remainder. This might be a problem if your partner couldn’t afford the repayments on their own, forcing them to sell the house to pay off the debt.

Mortgage life insurance prevents this by paying off whatever remains of your mortgage if you die before the term ends (in some cases they’ll pay it off while you’re still alive if you’re diagnosed with a terminal illness). With this in place, your loved ones are protected, and you can feel safe in the knowledge that your family will have one less thing to worry about.

Types of insurance for mortgages

Decreasing term life insurance

With a repayment mortgage, the amount you owe will decrease over time as you make repayments. Therefore, you won’t need as much cover as time progresses. A policy that takes this into account is called decreasing term life insurance, and means the payout will be less the longer you are into your mortgage term. For this reason it’s often cheaper than your other main choice: level term assurance.

Level term life insurance

With this type of insurance, the amount to be paid out doesn’t reduce but stays the same for the duration of your policy. Level term assurance is therefore suitable if you have an interest-only mortgage, but even if you don’t, you may want it to give your family an additional lump sum once the mortgage has been paid off. This makes it a good choice if you have no other life insurances in place and/or want to leave extra for your family should the worst happen.

Family income benefit

Family income benefit is a type of policy that doesn’t pay out a lump sum on death, but instead provides your family with a regular monthly income that can be used to make the mortgage repayments (and potentially other bills as well). You can specify how much you want to be paid out each month, as well as the term of the policy – this could be until the mortgage ends, or potentially longer if you wanted to make sure other expenses were covered.

Critical illness cover

Some life insurance policies also offer critical illness cover. This is an additional benefit that pays you a tax-free lump sum should you fall ill with a defined illness, such as cancer, a heart attack or a stroke. It’s likely you may also be covered for a range of other serious illnesses too, but these can vary from provider to provider. This type of policy is useful if, for example, your family would struggle without your earnings if you fell ill and were unable to work.

Single vs. joint life insurance

Should you get single or joint life insurance? If you’re buying a home on your own then single life insurance will likely be sufficient, but since many people buy with a partner, it makes sense to have a joint life insurance policy that will repay the mortgage should anything happen to either of you. In this case it tends to be cheaper to have a joint policy rather than two single policies, too.

However, even if you choose joint life cover – where two people are insured under the same policy – it’ll only pay out once. This will either be on the death of the first policyholder (known as first-death policies, with the payout typically going to the other insured party) or second (known as second-death policies, which aren’t as common). Make sure you’re comfortable with your choice and that you know exactly what to expect; it’s worth speaking to an adviser if you’re in any way unsure.

Where can I buy mortgage life insurance?

Your mortgage provider will likely offer you their own policy, but you’re under no obligation to accept it. Instead, it’s often best to shop around to find the right cover and price for your needs – you can buy mortgage life insurance from a wide range of providers, either directly or through a comparison site, or you may like to speak to a broker who can help you source the right deal.

It’s always worth comparing policies before you make your decision – you can check out some providers in our chart below.

Do I need life insurance if I don’t have a mortgage?

If you don’t have a mortgage – perhaps you’ve paid it off early, for example – you might be wondering if you still need life insurance. After all, there wouldn’t be any significant debts for your dependents to repay, so do you really need to consider a separate policy?

While it’s ultimately your own personal decision, having life insurance can be useful for reasons other than covering the mortgage. You may have other debts (such as loans or credit cards) that would need repaying, for example, or perhaps you’d simply like to ensure your family wouldn’t need to struggle to pay the bills after you’ve gone. This could be particularly the case if you’re the sole earner and want to ensure your family can maintain their lifestyle should the worst happen.

How much does mortgage life insurance cost?

How much you’ll need to pay for your policy depends on a range of factors, including:

• the type of policy you choose
• the level of cover you need
• your age
• your medical history and lifestyle
• whether you pay monthly or annually.

How much cover should I get for my mortgage?

The amount of life insurance you’ll need will depend on things like the type of mortgage you have, the outstanding balance, and whether you’re looking for a decreasing or level term policy. It’s important to make sure that your policy term is in line with that of your mortgage – the goal is to make sure that the payout will be big enough to cover the mortgage balance at any point during the term.

Do I need life insurance for a buy-to-let mortgage?

In a similar vein to standard mortgages, having life insurance isn’t a legal requirement for a buy-to-let mortgage, but it can make a lot of sense to be covered – particularly for those with dependents. This is because there’ll still be the debt to repay after you’ve gone, so if you’d like to ensure you family can still benefit from the rental property, it could be worth seeking a suitable policy.

Note that as a landlord you’ll need additional forms of insurance as well, such as landlord insurance, to make sure you’re fully covered and abiding by all appropriate regulations. Read our guide on how to become a buy-to-let landlord if you’re starting on your journey.