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Do You Need Life Insurance for a Mortgage?

A guide to mortgages and life insurance

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 20th January 2020 *

Taking out a mortgage is usually the biggest financial investment you’ll make in your lifetime. It’s a loan that you’ll be paying back for years and your circumstances may well change a couple years on from when you first signed the contract.

For example, ill health or a change in your income could affect your ability to keep up with repayments.. t’s worth considering taking out life insurance to give you peace of knowing that whatever the future holds, you’ll be able to repay your mortgage. 

 Many first-time home buyers, have questions about whether they need life insurance to get a mortgage.

In this article, we’ll cover common concerns buyers have when it comes to mortgages and life insurance

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Do you need life insurance to get a repayment mortgage?

The simple answer is no. It’s not compulsory to take out life insurance to get a mortgage. Some lenders, however, prefer if you do have a policy in place; it offers them assurance that, if you were unable to pay your mortgage or you died, they wouldn’t be out of pocket as the insurance would pay off your debts.

If the question you’re asking is if you should have life insurance, the answer is, more often than not, yes.

What type of life insurance do I need?

Life insurance isn’t needed to get a mortgage. However, if you decide you want the extra security if offers, it’s important you look for a policy that provides the right cover.

You can find out more about the specifics of life insurance, what it  covers, and the different types available in the comprehensive guide to life insurance on our sister website Online Money Advisor.

When do you need it?

The most common reason for needing life insurance is to ensure that whoever will inherit your property in the event of your death, does not inherit the mortgage with it.

Many families would be left unable to pay off the mortgage if anything were to happen to the main breadwinner. Your loved ones could stand to lose their home and be severely set back financially.

This can be devastating for those already struggling with tragedy or just a change in circumstances.

But life insurance will make sure your loved ones are well taken care of and can pay off the mortgage if the main provider dies or becomes critically ill. 

If you’re on your death bed, the last thing you want to be worrying about is how your spouse and children will keep the roof over their heads after all.

Should I take out life insurance or mortgage protection?

Mortgage protection insurance is a type of life insurance designed specifically to pay off the mortgage in the event that you die while the debt is still being repaid.

Your insurance company will pay off your mortgage directly to your lender so you don’t need to worry about your family picking up the costs. 

Mortgage protection taken out as a standalone policy is often the cheapest type of cover. If you’re looking solely for a payout to give you enough to pay off your mortgage, it may be all you need

Level term life insurance will pay off a lump sum if you pass away within the policy’s set term. While often more expensive, it can leave your loved ones with enough to cover the mortgage and have more leftover for other living expenses. 

If you’re keen to have these extra benefits, general life insurance may be a better option for you. 

How much life insurance do I need for a mortgage?

Levels of cover vary between insurance companies, and how much you can take out will also depend on your own personal circumstances. To find the right insurance type for you, so you’ll need to compare a few providers and review their policies.

Other considerations should be:

  • How much your mortgage repayments are
  • Other outstanding loans you may have
  • Family costs such as childcare, education fees, and other dependents
  • How dependant your loved ones on a single source of income

Your life insurance should cover all of these areas but as it’s paid monthly you’ll also need to look at your current outgoings to work out how much you can afford to spend on your life insurance.

Get in touch to be put through to a mortgage expert who can advise you on how much cover you may need and where to find a policy that’s right for you.

Should I get life insurance if I already have a  mortgage?

If you already have a mortgage you may be wondering whether you need to take out life insurance for it.

Most homeowners are offered life insurance by their mortgage broker when they initially go through with the buying process, however, as it’s not compulsory not everyone will opt in. 

You can choose to get life cover at any point that is right for you.

For example, you may previously have lived on your own, but now you have a family, so it could be worth investing in the security life insurance offers.

It’s worth noting that you can get life insurance that covers your full mortgage in the event of your death, or just part of it.

Remember that one of the main factors in determining the cost of your life insurance is your age so the longer you leave it, the more you could find yourself paying.

What if I don’t have a mortgage

Most people won’t take out life insurance before they have a mortgage unless they have specific reasons unrelated to owning property.

When you go through the process of applying for a mortgage you’ll most likely also be offered life insurance, and you can decide then if you’d like it or wait.

Typically speaking life insurance is for those who have dependents. If you don’t have a mortgage and you have no dependents then there are few benefits in having life insurance, since the benefits take effect when you die. 

If, however, you don’t have a mortgage but you still have dependents who rely on you for other needs such as education fees then you still may want to take life insurance out.

The question you need to ask yourself is; “Will there be a financial impact on anyone if I die?”. If the answer is yes, then you probably have a need for life insurance.

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

When you die, your debts do not die with you. This means that whoever stands to inherit your property will inherit the mortgage with it. It’s not a simple case of whoever you’ve left the property to simply taking over the mortgage, they must apply for a buy-to-let mortgage of their own exactly as if they were buying it themselves.

For many reasons this may not be possible i.e. not meeting criteria for a buy-to-let mortgage or having poor credit history. In circumstances such as this it may mean there’s no other choice than to sell the property.

Can I get life insurance for a mortgage in Ireland?

Mortgage rules in the Republic of Ireland differ from those in  the UK. In Ireland it isn’t compulsory to have life insurance if you’ve got a mortgage. However, it’s strongly advised, and most homeowners have taken out life insurance for extra financial security. 

We work with quality mortgage brokers throughout the whole of the UK who can help advise you on getting life insurance to cover your mortgage - wherever you are. 

Make an enquiry if you’d like to be put through to a mortgage broker with specialist knowledge for your location.

Where can I get more information?

Getting life insurance to cover your mortgage won’t be the right option for everyone, but in specific circumstances it can mean the difference between your family keeping their home or being left financially destitute.

Learning how to best protect your mortgage with insurance is a serious financial consideration that could have a big impact on your future. 

We specialise in matching people with the right advisor for their specific needs and can put you in touch a life insurance mortgage expert. 

If you’d help in finding the right type and level of life insurance cover, give us a call on 0808 189 2301 or make an enquiry.

Updated: 20th January 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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