It’s no secret that a mortgage is a huge financial commitment. It also perhaps has been the most common reason that people have gotten life insurance, as it helps to ensure that a surviving partner can afford to live in the home should you pass away 🏠
While it can be a huge help to some people, others may feel it’s an unnecessary expense. That begs the question of whether you have to get life insurance to get a mortgage and if not, should you get it anyway? That’s what we aim to clear up here.
There is nothing in the law that states you have to get life insurance. However, some lenders may have it as a precondition to signing an agreement but there are no legal barriers to getting a mortgage without life insurance.
Some will be flexible on this whereas others may have it as a definite requirement before you can proceed with your application. Quite often they’ll try and lead you to get life insurance with them or an affiliated company. Don’t feel pressured into making a quick decision as you’re free to choose life insurance with any company you wish. Why not choose life insurance with us? We have personalised cover and great prices to cover anyone aged 18-65 years old.
Why should I take out mortgage insurance?
We’ve established that you’re not legally required to get life insurance but should you be getting it anyway? There are a few compelling reasons to do so but everyone’s circumstances are going to be different. For most people, it makes sense to get life insurance. Read “7 Reasons to Explore Getting Life Insurance” to find some more reasons to get life insurance besides a mortgage.
Many homes are jointly owned and rely on at least one income to make the mortgage payments, often requiring two incomes. On solely owned properties, it will rely on one person to make the payments. In both of these situations, the mortgage can no longer be paid if someone dies.
That’s where life insurance for mortgages (or just in general) can be so valuable, as that financial burden is removed if you pass away. For surviving loved ones, this means not only being able to stay in the same home but also being able to pay for necessities going forward.
So why would a lender want you to have life insurance you may ask?
Well if a mortgage can no longer be paid, they would have to repossess and sell the property at auction, usually for a lot less than its actual value. If it doesn't sell for as much as the remaining mortgage, they will chase you for the rest and can leave you with huge debts. This situation is something that both of you want to avoid, and it can be, with a simple life insurance policy.
Choosing the right policy
If you’ve decided to opt for a life insurance policy then there are two main types you can get. They are either whole-of-life (full) cover or term insurance.
- Whole-of-life cover is where your loved ones receive a large cash lump sum upon your death and the beneficiary can use this to pay off the mortgage, if they wish.
Term cover provides a cash lump sum to your loved ones if you die within a set amount of time. The options for this type are level, decreasing or increasing (we only provide level and decreasing currently).
Decreasing is typically known as mortgage insurance. The amount you are covered for decreases over the term of your policy and in the event of your death, your loved ones can pay off what is outstanding on your mortgage.
Life insurance and mortgage
At the start we asked 'do I need life insurance for a mortgage?' and the simple answer to that is, no. As we've seen however, the answer is a little more complicated than that and what I’d like to challenge you with is that getting life insurance when you purchase a home, have a child or even get married is so important.
It’s not just about getting life insurance because the lender is asking for it, it’s because you have more assets and want to protect your loved ones 🤺
You shouldn’t feel pressured to get life insurance with the first guy that pops up, so make sure that it is the best policy for you, your family and loved ones. Take a look at our FAQs to see if Bequest is right for you.