Do I have to buy life insurance with a mortgage? Your questions answered

Recent research published in Mortgage Solutions has revealed that two in five homeowners with dependents have no life insurance cover.

In practice, this means that there are millions of people across the country who would leave their loved ones with a substantial mortgage debt if the worst were to happen to them.

If you’re taking out a mortgage, or you have a mortgage already, your mortgage adviser may have spoken to you about the importance of putting the right cover in place. However, you might be asking yourself the question: do I have to buy life insurance with a mortgage?

Here are answers to the common questions that customers ask us.

 

Do I have to buy life insurance with a mortgage?

No. Most lenders do not insist that you take out life insurance, but the majority will recommend that you do this.

Your mortgage is likely to be the biggest financial commitment you ever make. So, if you’re prepared to take out insurance to protect your phone, car, bike, or even your pet, it makes sense that you’d consider cover to protect your family and ensure they could remain in your home if the worst happens to you.

 

Why should I take out life insurance with a mortgage?

Think about what would happen to your mortgage if you were no longer around to pay it.

For example, you may well have bought your home with a spouse or partner. It’s likely that both your incomes were taken into account when the lender agreed the mortgage, meaning that one of you might struggle to pay it by yourself.

Could your spouse or partner continue to make the monthly repayments on their sole income? Would they be able to pay the mortgage and all the other associated bills, such as utilities and Council Tax?

And, if you had children, would you want them to be secure and continue to live in the family home if the worst happened to you?

Putting the right life insurance in place gives you the peace of mind that financial support will be available when your loved ones need it the most. Your beneficiaries can use the payout to repay your mortgage, enabling them to maintain their lifestyle and stay in the family home.

 

What sort of life insurance is best for my mortgage?

The right sort of mortgage insurance often depends on the type of mortgage you have.

Repayment (capital and interest) mortgage

With a repayment mortgage, your monthly repayments incorporate some of the interest on the loan, and some of the amount you borrowed.

If you have a repayment mortgage, then decreasing term insurance might be the best choice for you. The amount of life insurance provided by this sort of plan decreases in line with your repayment mortgage, so it’s designed to pay off any outstanding balance.

For example, if you take out a £200,000 repayment over 25 years you may set up a decreasing term insurance (sometimes called “mortgage protection”) policy for this amount.

• If you died in the first year, the cover would typically repay a lump sum of £200,000 so your beneficiaries could repay the whole mortgage. 
• If you died in year 24, the cover would provide a smaller lump sum designed to cover whatever mortgage balance was outstanding at that time.

Decreasing term insurance can be a simple and cost-effective way of ensuring your mortgage is repaid if anything happens to you during the mortgage term.

 

Interest-only mortgage

With an interest-only mortgage, you simply pay the interest you owe on the borrowing. The capital – the amount you borrowed – remains the same.

Here, a level term insurance policy may be more suitable. This type of plan provides a fixed amount of cover for a fixed term – for example, £200,000 over 25 years. If you died within the term of the policy, the insurer would pay the sum assured. This could enable your loved ones to pay off your interest-only mortgage.

 

How much does mortgage life insurance cost?

When Legal & General asked millennials why they didn’t have life insurance, the two most common answers were: 

The 2021 survey referenced above found the same – it revealed that 46% of people believed life insurance was “too expensive”.

The truth is that life insurance costs a lot less than you might expect. Legal & General asked people to guess the typical monthly cost of a life insurance policy to cover a 30-year-old non-smoker with a cash sum of £100,000 for 30 years.

A staggering 92% of people quizzed overestimated the cost of life insurance for someone aged 30.

The median guess was £23 per month, which is just over three times more than it could actually cost a 30-year-old non-smoker to take out this cover. 23% of respondents said it would cost more than £50 for this cover when it can cost just £7 to £8 per month.

The cost of your protection could start for less than the cost of a couple of cappuccinos or your Netflix subscription each month. The actual cost will depend on factors such as:

• Your age
• The amount of protection you need
• The term of the policy
• Your current health, height, weight etc.
• Your medical history
• Your occupation and hobbies.

The best way to find out how much life insurance will cost is to get an online quote. You can compare the cost of mortgage life insurance online on our website – just pop in a few details and we’ll scour the market to find the best price for the protection you need.

Not sure how much protection you need? Our life insurance calculator can help. 

 

Should I take a single or joint life mortgage life insurance policy?

If you’re taking out a joint mortgage, it can be a good idea to ensure both borrowers have enough protection to repay the loan in the event of death.

There are two ways you can do this:

• Single life policies – here, each party would take out an individual life insurance policy to cover the mortgage. The advantage is that, if one party dies and a payout is made, the other party retains their life insurance, ensuring that they remain protected.
• Joint life policy – this may be slightly cheaper than two single life policies, but it’s important to note that, if a policyholder dies, the policy pays out once and then ends. The surviving partner won’t then have any life insurance themselves.

 

How do I find the right mortgage life insurance for me?

We’re life insurance experts and have wide experience in helping customers to find the right mortgage life insurance.

We work with dozens of the UK’s leading insurers, so we can find the right cover at the best price. We even take a lower than standard level of commission from insurers so we can pass these savings on to you.

Our specialists can also help you to find cover if you’ve experienced physical or mental health issues in the past. If you’re worried you won’t get cover, talk to us and we can work with you and leading insurers to find the protection you need.

Compare mortgage life insurance quotes online now or get in touch to find out how we can help you find the mortgage life cover you need.