Do I need life insurance for a mortgage?

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.

Without life insurance, if you were to pass away, your loved ones could risk 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 cover your remaining mortgage balance, meaning it can be paid off in full, but will also ensure there are minimal disruptions to your family’s day-to-day living expenses.

Losing a loved one is already a difficult 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.

Mortgage payment protection (MPPI) and life insurance are two different forms of financial protection that will 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.

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 814,000 families protect their home by securing them life cover.

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 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 have other aspects of your life that you need to protect, 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.