Why You Should Have Life Insurance When You Get a Mortgage

• Home
• Resources
• Why You Should Have Life Insurance When You Get a Mortgage

Getting a mortgage is a huge financial undertaking – for most people the largest monetary commitment they will ever make. Making sure your family is protected if anything happens to you is an important thing to think about.

Do you need life insurance when getting a mortgage?

Legally, it isn’t compulsory to take out life insurance with a mortgage, but that doesn’t stop it from being a very sensible option to take!

A mortgage is a very long-term loan. For most people, a 25-year or greater period of repayments will be set out and a lot can happen in those twenty-five years.

Life insurance that is correctly set-up to cover your mortgage will give you the guarantee that, should the worst happen, your family will not lose their home. The alternative – where those left behind and grieving must struggle to find the money to make regular substantial payments, is not something that most of us want to think about.

Do mortgage lenders insist on life insurance?

Some mortgage lenders may determine that life insurance must be in place in order to secure a loan with them, but you will be able to get a mortgage without life insurance if you are willing to look at the other offers available to you.

It is worth taking care when discussing life insurance with your mortgage lender – they will likely have a branch of their bank or organisation that sells life insurance and will push you down the road to getting their life insurance. In truth, you are under no obligation to purchase life insurance from the same lender as your mortgage and it is very likely that if you do, the deal you will be getting will be far worse than something arranged by an independent broker.

If your potential lender insists on life insurance being in place, then don’t just accept their integrated offer – give us at Quick Quote Protect a call and we can help you get a deal in place that both satisfies their requirements as well as saving you hundreds on your annual premiums!

Is life insurance the same as mortgage protection? What about house insurance?

The world of mortgage-relevant insurance is filled with slightly different options:

Decreasing Term Assurance (DTA)

Decreasing term life insurance is a life insurance policy that is linked to the value remaining to be paid on your mortgage. If you should pass before the mortgage is paid, then the life insurance will cover the remaining value – leaving your family home safe and paid for.

Called ‘decreasing’ as the final payout shrinks to be in line with the remaining balance of your mortgage, DTA offers a high-quality life insurance solution with exceptionally low monthly premiums.

For most, DTA is the perfect solution for life insurance designed to cover a mortgage. It can be combined with other life insurance packages to provide a comprehensive level of cover for any eventuality.

As explained above, DTA is not considered compulsory for most mortgage lenders, but is a wise financial decision, nonetheless.

Level Term Assurance (LTA)

The advantage that level term assurance (LTA) has over DTA is that the end pay-out does not drop in line with your mortgage, meaning that there will be money left over to pay for other expenses and leave your dependants a little something. As long as the amount of the insurance is set larger than your initial mortgage value, LTA guarantees to give enough of a cash injection to pay off any outstanding mortgage balance.

A level term premium is typically significantly higher than a DTA alternative.

For those who see their mortgage as an investment, perhaps considering letting out the property at some point, level term assurance can help as part of an interest-only mortgage package.

Critical Illness Cover (CIC)

An additional level of cover to add to your life insurance which will result in a payment, should you become the victim of an injury or illness that prevents you from working, CIC is a comprehensive solution to cover all bases – you can find out more in our Critical Illness guide.

Like life insurance, CIC is not obligatory for your mortgage.

Income Protection (IP)

For those without significant work sick-pay schemes or the self-employed, income protection insurance can provide a guarantee of salary for months and even years during a period of illness.

A slightly different angle for providing support in the case of illness to CIC, IP works to cover the shortfall while you recover, where CIC pays out a lump sum to help with all aspects of a life-changing medical condition.

Mortgage Payment Protection Insurance (MPPI)

Unlike both CIC and IP, MPPI (sometimes simply referred to as mortgage protection) is designed purely with the mortgage in mind and offers no additional money to help with any other financial commitments.

MPPI offers a short-term (usually capped at two-years) solution should you be unable to work and make your mortgage payments at any time. For a reasonable premium each month, you get a basic level of cover to make sure you do not fall behind with your house repayments.

Mortgage protection is not the same as life insurance and provides only the minimum level of cover possible. It is not usually available as part of your main life insurance policy but must be taken out separately.

Like the other types of insurance described above, MPPI is not compulsory for most mortgage lenders.

House buildings insurance

Insurance to protect your home in the case of a fire, flood or other damage is the only insurance that is compulsory to most mortgages. Quite reasonably, the lending company wants to be sure that nothing can happen to the house which is the security on the loan!

House insurance does come in two varieties: buildings insurance and contents insurance. While you do need buildings insurance, whether you insure your furniture and possessions is an additional choice that no mortgage lender is going to require of you.

How do I get insurance when buying a house?

Here at Quick Quote Protect, we are here to help. We will find you the best deal that fits your circumstances, from a single decreasing term life insurance policy to a comprehensive package covering you for illness and injury in addition to full life cover.

We have experts who understand all levels of life insurance and mortgage protection policies and are here to answer any questions you might have regarding this significant commitment.

Give us a call today or fill in our contact form to have an advisor call you back at a time convenient to you.