Do I need life insurance for a mortgage?

09 April 2024

You’re not legally obliged to get life insurance for a mortgage, but some lenders may consider it a precondition for letting you borrow money to buy a home. In this article, we look at the types of insurance that a lender may ask you to take out if you want a mortgage

Should you get life insurance for a mortgage?

For the vast majority of homeowners, having financial protection in place makes sense. If you own a property, a mortgage is likely to be the biggest debt you leave behind should the worst happen, so having a policy in place can help give you peace of mind. And if you have children, a partner, or other dependents living with you, taking out mortgage life insurance could protect your loved ones financially.

How long will I need ‘mortgage life insurance’ for?

Average UK house prices were £285,000 as of December 2023*. With prices this high, it’s no surprise that many homeowners have to borrow money in the form of a mortgage to buy a property. Some buyers choose to take out life insurance for the duration of their mortgage – such as 25 years – so that they have financial protection during these years. If you’re repaying your mortgage over a shorter timeframe, you can also take out short term life insurance.



Buying a home with a partner

Life insurance is important to consider when buying as a couple. If you’re buying your home with your partner, you could need both salaries to afford the mortgage. If you or your partner died while your mortgage loan was still outstanding, would one of you alone be able to keep up the regular mortgage repayments?

Life insurance can help by paying out a cash sum if you die during the length of your policy, which can be used to help pay the remaining mortgage – this is what ‘mortgage life insurance’ usually refers to, meaning they can continue living in your family home without worrying about the mortgage.

do i need life insurance for a mortgage - couple buying a home

Life insurance as a landlord

do you need ife insurance for a mortgage - landlord

Lenders treat residential and buy to let mortgages differently. They generally check affordability by looking at whether the rent will cover mortgage interest payments. Lenders are more likely to ask the borrower to take out landlord insurance before taking on tenants. This will help ensure the property is insured against damage. Life insurance is generally less of a priority for lenders. As the property is not the borrower’s family home, it can be sold to repay any outstanding mortgage if the landlord dies. However, if you’re buying a home as an investor, or you already own a home and you’re looking to rent it out, you may still have a need life insurance. This way, you can help cover the mortgage in the unfortunate event you pass away, during the length of the policy. Reducing the mortgage would increase profits if you want to leave the property as an investment. You might want to increase your life insurance cover to account for the higher mortgage liability should you refinance your investment property or portfolio.

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

It is a common misconception that life insurance is only relevant to homeowners. While it’s true that renters are less likely to take out life insurance, that doesn’t mean you don’t need life insurance if you don’t have a mortgage. If you’re a tenant and you have a family, think about the financial impacts it would have if you were no longer around. Could your loved ones afford the rent in your absence? What about other costs like household bills or child care costs if you have a family. In essence, life insurance is always worth considering if other people rely on you financially, it's not just for those with a mortgage.

do i need life insurance for a mortgage - young girl renting home

How much life insurance do I need for my mortgage?

When figuring out how much life insurance cover you need for a mortgage, there are more costs to consider than you might think. Factors to take into account include:

  • Your repayments. What you need to repay and what is your current balance.
  • Your term length. How long will you be paying the mortgage for.

Additionally, when taking out life insurance, you may want to factor in other financial costs you could face, such as other debts.

Try our life insurance calculator to estimate how much life insurance cover you might need.

Buildings insurance is often a lending condition. This type of cover insures the property against damage. Lenders ask borrowers to take out this insurance because the property is security for the mortgage.

What happens to my life insurance once my mortgage is paid?

Unless life insurance is a lending condition, your mortgage and life insurance policies are not directly linked. So if you’ve paid off the mortgage, there will be no direct impact on your life insurance.

Even if you’ve paid off a mortgage, you may wish to continue having life insurance so you can protect your family from other costs if you die, such as household bills. The amount of protection you need can change. Repaying a mortgage is a good time to take stock and see if you’ve still got the right cover in place.

A home is so much more than an asset, and whatever type of life insurance you choose, paying a small monthly premium can help your family carry on living there if you are no longer around. Read our guide on how to decide whether you need life insurance.

Please remember that life insurance is not a savings or investment products and have no cash value unless a valid claim is made. Your policy will only remain valid so long as the premiums are paid.