Do I need life insurance to get a mortgage?

No, the good news is that you don’t actually need life insurance to get a mortgage. It’s not a legal requirement and your mortgage lender can’t insist that you take out a policy. However, it is well worth considering if you have people who rely on your income.

There are also other types of protection insurance you might want to consider when buying a home. Some are designed to help with your mortgage payments if you can’t work, while others provide financial support if you become seriously ill.

Let’s take a look at what you actually need, what’s optional and what could be well worth considering.

Life insurance for mortgage

One of the main reasons people choose to take out life insurance is to help protect their family from the financial impact of losing their income.

If you were to die during the term of your policy, a pay out helps your loved ones keep up with the mortgage and other household costs.

Without this financial support, your family could face some really difficult decisions about how to manage payments during an already emotionally difficult time. Having life insurance give them more options and help them stay in their home, depending on the level of cover you choose,

There are also other types of protection insurance you might want to consider when buying a home. Some are designed to help with your mortgage payments if you can’t work, while others provide financial support if you become seriously ill.

Life insurance isn’t a requirement of getting a mortgage, but having a policy in place can give you peace of mind.

How financially resilient are you?

Sounds a bit complicated, but financial resilience is about having plans in place to help you cope if your circumstances change unexpectedly.

That could mean having enough savings to cover your monthly costs, or protection in place to give financial support, if you become ill, injured or die.

You can use our financial resilience tool to see how well protected you are and where you might have gaps in your cover.

Check your financial resilience with our risk assessment tool and see how well you're protected when life throws the unexpected at you.

What kind of insurance do I need to get a mortgage?

While your lender will require you to have buildings insurance in place, you don’t normally need life insurance to get a mortgage.

Buildings insurance protects the structure of your home if it’s damaged by events such as fire, flooding or storms. It covers the physical parts of the property, including the walls, roof, floors and permanent fixtures and fittings, rather than your personal belongings.

The reason that your mortgage lender will expect you to have buildings insurance in place is because the property itself is used as security for the mortgage. In a nutshell, the condition of you living in that home is because you pay your mortgage. If you don’t pay your mortgage, the lender can take the home back.

So, if something happened to your home that significantly reduced its value, the insurance helps cover the cost of repairs and protects the lender’s investment.

This is why buildings insurance is generally a condition of getting a mortgage, while life insurance isn’t. Property is an asset and has a financial value attached to it.

Benefits of life insurance

Life insurance can be worth considering for several reasons, and some of the potential benefits include:

• Helping to cover the mortgage: A pay out could help your loved ones keep up with mortgage payments if you die during the policy term.

• Protecting your family’s finances: The money could also be used towards everyday household costs, childcare or other financial commitments.

• Helping your family stay in their home: Having financial support in place could give your family the security that, although you are gone, they can at least stay in the place you all made your home.

• Provide a financial safety net: Life insurance can give your loved ones some financial support at a really difficult time, helping them focus on what comes next rather than immediate money worries.

• Cover other debts: Depending on the amount of cover you choose, a pay out could also help with outstanding debts.

How much does life insurance for a mortgage cost?

There’s no set price for life insurance. The cost can, and will, vary depending on things like:

• Your age

• Your health and lifestyle

• The amount of cover you need

• How long you want the policy to last

The type of policy you choose can also affect the cost. If you’re not sure what level of cover you need, or what you can expect to pay, a protection adviser can talk you through your options.

What types of life insurance are there?

There are a few different types of life insurance and the right one will depend on what you want your policy to cover.

Level term life insurance

The amount of money paid out stays the same throughout the policy term. This could be useful if you want to leave your family a set amount to help with the mortgage and other costs.

Decreasing term life insurance

The amount of money paid out reduces over time, broadly in line with a repayment mortgage. This can be a way of protecting the amount you still owe on your mortgage.

Increasing term life insurance

The amount of money paid out increases over time, either by a fixed percentage or in line with inflation, depending on the policy. This could be useful if you want the amount of cover to keep up with the rising cost of living.

Whole of life insurance

This provides cover for the rest of your life, as long as you keep up with the premiums and the policy is ongoing. It can be used for a range of financial needs, not just your mortgage.

How long should you get life insurance for?

The duration for which you should get life insurance largely depends on your specific financial obligations and personal circumstances. Typically, people choose a term that matches the length of their major financial commitments, such as a mortgage. If you have a 25-year mortgage, for instance, a 25-year policy would be a sensible choice, ensuring that the mortgage is covered if you pass away within that period. This alignment helps ensure that your family can maintain their home without the burden of mortgage payments in the event of your death.

Beyond matching the mortgage term, you should also consider other factors such as the age of your dependents and your overall financial plan. If you have young children, you might want a policy that extends until they are financially independent, perhaps through their university years. 

How long should you get life insurance for?

If you’re taking out life insurance to protect your mortgage, you’ll need to think about how long you’ll need the cover for. Many people choose a policy term that matches the length of their mortgage.

For example, if you have a 25-year mortgage, you could take out a 25-year life insurance policy. You might want your cover to last longer if you also want to protect your family beyond the mortgage, especially if you have children or other people who rely on your income.

The right term will depend on what you want your life insurance to cover and your own circumstances.

How can a protection adviser help?

Working out how much cover you need and which type of life insurance is right for you can feel like a lot to get your head around. A protection adviser can talk you through the different options and help you work out what you need.

They can look at things like your mortgage, income, family and other financial commitments. They’ll also explain how different types of cover work. This can help you understand what your policy would (and wouldn’t) cover, as well as the costs involved.

Speak to one of our protection advisers for advice and find out how they can help you.