Do you need life insurance to get a mortgage?

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The short answer is no, you are not legally obliged to have life insurance. However, if you have dependants, that you will behind, then it may be worth considering purchasing life insurance NI to make sure that they will not have to worry about paying the monthly repayments. This insurance is designed to cover your mortgage should you pass away before you clear your mortgage off.

Buying a home can be one of the most thrilling but also daunting times. There will be so much paperwork to sign, chasing for updates on exchanging dates, browsing for furniture and items to make your new place feel like a home to you, and finally getting the best home insurance deal available. You may even feel like you have more money leaving your bank account than coming in, so you start to question the need for yet another insurance. To help, see below quick information as to why you should consider getting life insurance.

What happens to a mortgage without insurance?

If you have a next of kin who will inherit the property, they will have to pay your monthly payments. If they cannot pay, the lender could insist that your possessions are sold to clear the debt or even the property itself.

Some mortgage lenders can insist you have life insurance in place, or they won’t lend to you, so always check with who you are looking to get an Agreement In Principle from any bank. They will likely try to market to you their own life insurance but remember it is always best to shop around, you do not have to legally take the lender's life insurance policy.

What types of life insurances are there?

Mortgage life insurance - benefits the mortgage lender, rather thank who you designate. The benefit of this is that your cash sum decreases the same way your mortgage does, therefore you can specify the amount of cover for your needs which can mean lower premiums, dependent on your health.
Term life insurance - benefits your next of kin/designated beneficiaries.

Now with Term life insurance, there are two different types which I’ve helpfully clarified below for you:

Level term - The cash sum stays the same throughout the policy and your monthly premiums remain the same unless you make changes to the policy.
Increasing term - You pay higher premiums, but your cover amount is reviewed in line with inflation, or rising cost of living.

You may also be marketed for health insurance NI in addition to your overall life insurance policy. Dependent on your health/occupation, this may also be an option worth looking into. There are in general two types of additions:

Critical Illness Cover - Adding this means if you have a critical illness at any time then a pay-out can be claimed on the policy and if you are unable to return to work this lump sum could help ease the burden of household bills to repay.
Terminal Illness Cover - Adding this means if you are diagnosed with a terminal illness then this cover could pay out the full amount of cover when your life expectancy is highly shortened, and you meet the lender’s definition of a terminal illness.

What happens to life insurance when the mortgage is paid?

At the end of the agreed policy period, your cover ends and the pay-out it offered is no longer available and your life insurance cover will end.

If you are one of the lucky ones to reach this amazing goal then hat’s off to you, but for peace of mind and because when we live in a time when everyone is counting the pennies, having a life insurance policy in place can help take one less stress off your mind. Should a critical illness, terminal illness or even death stop you in your path, you can be confident knowing you picked the best policy for you and your family to help ease any further financial worries in your absence.

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