Life insurance when buying a house

When buying a house there are lots you’ll need to consider, how you’ll protect it is one of them.

But what protection do you need?

Commonly, when securing a mortgage, new buyers look to family life insurance.

But despite popular belief, it’s not a legal requirement to secure life insurance - although it might be a very sensible one.

At Reassured we can help you secure cover to help protect your mortgage from just 20p-a-day.

In this article Reassured will clear up any queries you may have about whether you need life insurance when taking out a mortgage…

Is it a legal requirement to have life insurance with a mortgage?

No, it’s not a legal requirement to take out a life insurance policy when getting a mortgage.

While it’s not a legal requirement, it’s often recommended that you take out a policy.

This is to help protect your mortgage in the event of a worst-case scenario.

If you were to pass away, would your loved ones be able to afford the monthly mortgage payments?

Life insurance offers financial security and provides you with peace of mind that your loved ones will be able to stay in the family home.

You can read our full mortgage life insurance guide here »

Can you get a mortgage without life insurance?

Yes, it’s completely possible to secure a mortgage without a life insurance policy.

Most mortgage providers won’t require you to have a life insurance policy when approving your mortgage.

However, some lenders may also ask that you take out a policy as a precondition for letting you borrow money from them.

In some cases, you may need to take out a policy before your lender releases any funds.

This is so they can protect themselves if the worst were to happen to you.

What insurance do I need when buying a house?

Your house is most likely going to be your largest asset, so it makes sense to take steps to help protect it.

This can be done by taking out:

  • Buildings insurance
  • Life insurance
  • Mortgage payment protection
  • Contents insurance

The only insurance you’re required to take out by law when buying a property is buildings insurance.

Buildings insurance

Buildings insurance will protect you against the cost of repairs if your home were to be damaged.

It covers things such as the structure of your home, the roof, walls and windows as well as any permanent fixtures (such as bathroom suites and fitted kitchens).

Unfortunately, this isn’t something we provide at Reassured.

Taking out life insurance will help to protect your loved ones in the event you were to pass away.

The type of mortgage you have will determine which form of life insurance is most suitable.

Level term life insurance

With level term life insurance, your sum assured (pay out amount) remains fixed throughout the lifetime of your policy.

This means the amount paid out to your loved ones always remains the same, no matter when you pass away (during the policy term).

For this reason, it’s ideal for helping to cover an interest-only mortgage.


Decreasing term life insurance

With decreasing term life insurance your pay out amount will reduce over time.

This makes it ideal for helping to cover a repayment mortgage as your sum assured can reduce inline with your remaining mortgage balance.


At Reassured, we can arrange both level and decreasing term life insurance, so get in touch to secure our best deal.

You may also want to consider taking out:

Mortgage payment protection insurance

Mortgage payment protection insurance (MPPI) provides financial protection should you lose your job, become injured or unwell and can't work.

MPPI will cover your mortgage payments for you for up to a year or until you return to work.

Payments will be made in full unless they exceed the upper limit listed in your policy.

This isn’t something we provide at Reassured.


Contents insurance

Contents insurance is designed to help protect the things in your home (your belongings).

It includes the cost of repairing or replacing damaged possessions in the event of a fire, flood or theft.

Some contents insurance policies also protect your belongings when you’re not in the home (such as your phone or laptop).

Again, this isn’t something we provide at Reassured.

Why do you need life insurance on a mortgage?

Without life insurance, if you were to pass away, it could risk your loved ones having to leave the family home.

If you were no longer around could your loved ones afford to:

  • Continue to make mortgage payments?
  • Continue living their current lifestyle?

If the right financial protection isn’t in place, their new budget may struggle to meet their new circumstances and could result in the home needing to be sold.

A life insurance pay out can not only help to cover your remaining mortgage balance, but will also ensure there are minimal disruptions to your family’s day-to-day living expenses.

Losing a loved one is a distressing time, but life insurance could help to give you peace of mind that your loved ones won’t struggle financially.

If you don’t have dependants and are single, it’s less likely that you’ll need life insurance.

This is because you won’t be leaving a family or partner behind who may struggle to keep up with mortgage payments.

Difference between life insurance and mortgage life insurance

There’s actually no difference between a standard life insurance policy and mortgage life insurance.

Mortgage life insurance is simply a life insurance policy that’s taken out with its purpose being to cover your mortgage should the worst happen.

Usually, this is a decreasing term life insurance policy that’s set up to mirror your mortgage repayment schedule.

Is it better to have mortgage insurance or life insurance?

Mortgage payment protection (MPPI) and life insurance are two different forms of financial protection that can help to cover your mortgage.

MPPI insurance is a form of income protection that will cover your mortgage payments in the event of redundancy or serious accident or illness.

Payments will be made in full (unless payments exceed the upper limit stated in your policy, usually a percentage of your annual salary).

Plans will cover your payments for the length of time agreed when taking out the policy or until you return to work (whichever comes first). It won’t pay off the outstanding balance of your mortgage.

Life insurance will provide a lump sum pay out if you were to pass away during the term of your policy.

Critical illness can be added to life insurance, allowing you to make an early claim in the event you become seriously ill and unable to work.

All life insurance policies arranged through Reassured come with terminal illness as standard.

This extra layer of protection will allow you to receive an early pay out if you’re diagnosed with a terminal illness and given less than 12 months to live.

A pay out from life insurance, critical illness or terminal illness can be used to help keep up with mortgage repayments or help pay off the remainder of your mortgage in full.

Mortgage payment protection Life insurance
Offers short term protection Provides long term protection (term policies can be up to 40 years)
Will pay out if you loose your job or become too ill to work Will pay out upon your passing
There are usually upper limits in place on policy Critical illness cover can be added to your policy for an additional fee
Payments may not be made in full if your monthly payment exceeds the upper limit Terminal illness cover will come with a term policy at no extra cost
  Sum assured (pay out amount) can be up to £1,000,000
  Mortgage can be paid off in full (depending on the level of cover you secure)


Your mortgage is likely going to be the largest debt you have, so it’s important to have some form of cover in place to protect it.

Which form of cover is best for you will depend on your needs.

If you’re looking for shorter-term cover, MPPI might be the right option.

If you’re looking for long term protection to ensure your loved ones can remain in their home should the worst happen, life insurance may be the right option.

To ensure full cover for your mortgage, it’s likely to be beneficial to have both forms of insurance in place simultaneously.

At Reassured we’ve helped over 1,000,000 families protect their home by securing them life cover.

How much is life insurance for a mortgage?

How much you’ll pay for your life insurance policy will be based on your personal circumstances.

At the point of application, you’ll be asked questions regarding:

  • Your age
  • Your health and wellbeing
  • Medical history
  • Smoking status
  • Level of cover required (sum assured)
  • Length of cover (the term)

These factors will allow insurers to determine the level of risk you pose and your premium will be calculated accordingly.

Those who’re deemed a higher risk will pay higher premiums than those who’re deemed low risk.

For example, someone who smokes may pay higher premiums than a non-smoker.

Your mortgage provider or estate agent may encourage you to buy life insurance directly from them, but this is because they could earn a commission from you doing so.

This is likely to not be the most cost-effective option as prices can vary between insurers.

To make sure you’re getting a good deal it’s important that you compare multiple quotes.

How much mortgage life insurance do you need?

Enter your financial commitments to understand the level of mortgage life insurance you require.

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£137,934 is the estimated mortgage debt per household in the UK.

The purchase of a home is likely to be the largest financial commitment any of us will make in our lifetime. Your life insurance should cover your remaining mortgage balance to allow your loved ones to stay in the family home should anything happen to you.

Source: Moneynerd.co.uk

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The average monthly household budget in the UK is £2,548 (that’s £30,576 per year), which is spent on transport, food & drink, utilities (gas, electricity, water etc), clothing, council tax and leisure activities.

With energy prices hitting a record high and the cost of living rising sharply in the UK, you may wish to factor in utility bills and family living expenses into your cover.

Source: Nimblefins.co.uk

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The average personal debt of UK adults has risen to £34,566 (not including mortgage debt), with credit cards, personal loans and overdrafts being the most common forms of debt.

Factoring in any debts into your life insurance cover means that, if they need to be paid back from your estate after your passing, your loved ones won’t miss out financially.

Source: Money.co.uk

£
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According to SunLife, the average cost of a funeral in the UK is £3,953 (with the overall cost of dying at £9,200).

Funeral costs have increased by 116% since 2004 and are a significant cost which should be factored into the amount of life insurance you secure.

Source: SunLife.co.uk

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When factoring in cover for your children, you may wish to calculate the amount based on how long it is until they reach financial independence.

This could include childcare (£7,000 per year for part-time care), school expenses (£1,519 per school year for uniforms, lunches, stationary etc), as well as an additional sum for further education (this could be a contribution of up to £5,000 per year).

Sources: Daynurseries.co.uk, Primarytimes.co.uk & Savethestudent.org

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2 in 5 adults say they are relying on an inheritance to fund their retirement.

Factoring in an inheritance to your sum assured could allow loved ones to live a more financially comfortable life. Alternatively, you could leave a cash gift to a charity of your choosing.

Source: Moneyage.co.uk

£
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If you’re lucky enough to have your own savings or are part of the 30% of UK residents who already have a life insurance policy in place, this can provide financial protection for loved ones.

By entering your current cover, savings or death in service amount you can reduce the sum assured you require.

Source: Scottishbusinessnews.net

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Your total cover estimate

£ 0

Let us find you our best quotes.

The table below shows example pricing for a decreasing term life insurance policy to protect a mortgage over a 30-year term for £250,000 of cover, for someone who is a non-smoker and in good health:

Age Monthly cost for mortgage life insurance
30 £8.13
35 £10.69
40 £15.17
45 £22.31
50 £36.27

How long should I get life insurance for?

How long your life insurance should last for will very much depend on your own personal needs and circumstances.

When taking out life insurance to help protect your mortgage, you’ll align your policy with your mortgage term.

For example, if you have a mortgage term of 30 years, your life insurance policy term should be at least 30 years.

It’s also important to have your cover mirror your remaining mortgage balance, so your sum assured should at least be the same amount as your mortgage (if you’re able to secure this cover amount).

If you have other aspects of your life that you need to help cover, such as family living costs or funeral expenses, you may choose to have your policy last longer than your mortgage term (for example, until your children are financially independent).

It’s ultimately up to what you believe will best meet the needs of you and your loved ones.

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

If you don’t have a mortgage, whether or not you need life insurance will very much depend on your own personal needs.

Protecting a mortgage isn’t the only reason to take out a life insurance policy.

Life insurance can also help cover many other aspects of your life should you pass away, such as:

  • Funeral expenses
  • Childcare costs
  • Family living costs
  • Rental expenses
  • Outstanding debts

If you have people who depend on you financially, such as a partner and children, you may want to take out a policy to secure their financial future.

Or you may want to take out life insurance to help your loved ones cover your funeral costs.

At Reassured we believe that most people would benefit from having some form of life insurance in place.

Compare quotes to protect your mortgage

Comparing life insurance quotes to help protect your mortgage is essential in order to secure a good deal.

At Reassured, our award-winning team can take you through the whole application process, explain your options and compare quotes.

Life cover through Reassured starts from as little as 20p-a-day.

Why not get in touch today for your free no-obligation quotes.

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