Do First-Time Buyers Need Life Insurance?

Buying your first home is a huge milestone, but despite all the excitement, you need to think about the future. Paying a mortgage, for example, is a significant commitment that you're expected to fulfil. If anything happens to you or your partner, it could be significantly impacted.

For most couples, life insurance is a tried and tested approach, but still gets overlooked. In this guide, we'll look at why you need life cover as a first-time buyer and the benefits it can offer.

Why is life insurance important for first-time buyers?

When you buy your first home, you are taking on a massive commitment that, for most, stays with you for at least 15 to 30 years, depending on your mortgage term.

During this time, anything could happen. For example, you could lose your job, reducing your income and ability to make mortgage payments.

Or, in the worst-case scenario, you or your partner could pass away before the mortgage is repaid. In this instance, you or your partner would be left on your own to make repayments. This in itself could cause significant financial strain at an already difficult time.

With life insurance, however, you can provide a safety net that can help ensure your loved ones are financially protected if something happens to you. They can use the payout to cover the mortgage along with other expenses like living costs or planning your funeral.

Life insurance is best suited to an interest-only mortgage.

It may not be on your mind, especially if you're young, but it can make a huge difference in times of need.

Benefits of life insurance as a first-time buyer

For many first-time buyers, life insurance is simply a way of making sure their home remains secure for the people they care about. Some of the main benefits include:

• Protecting your mortgage – Life insurance can provide a lump sum payout that could be used to repay some or all of the outstanding mortgage if you were to pass away. This can help ensure your partner or family members are able to remain in the home.

• Financial security for your partner or family – If you share financial responsibilities, a payout could help cover ongoing household costs, bills, and other commitments.

• Peace of mind during a major life step – Buying your first home is often one of the biggest financial decisions you’ll make. Having protection in place can help reduce worries about how your loved ones would cope financially.

• Helping cover additional living costs – Beyond the mortgage, a payout could help cover everyday expenses, childcare, or outstanding debts that may otherwise fall to your family.

• Affordable cover when you’re younger – First-time buyers are often in their 20s or 30s, which can make cover more affordable compared to arranging later in life.

• Flexible policy options – There are different types of policies available, such as decreasing term cover designed for a repayment mortgage. There’s also level term cover that provides a fixed payout.

What types of life insurance should first-time buyers consider?

There are a number of life insurance policies that can be used to cover a mortgage. Some can be used to cover a mortgage specifically whereas others can cover additional costs such as living expenses, childcare, funeral costs and more.

Here are some of the main types of cover first-time buyers should consider:

• Decreasing term life insurance: Often referred to as mortgage life insurance, this type of cover is commonly used alongside a repayment mortgage. The payout reduces over time in line with your outstanding mortgage balance, making it a popular and cost-effective option for first-time buyers.

• Level term life insurance: This provides a fixed lump sum payout that stays the same throughout the policy term. It can be used to help clear a mortgage, but also offers extra financial support for dependants or other living costs.

• Whole of life insurance: This provides lifelong cover and guarantees a payout whenever you pass away, as long as premiums are maintained. It’s generally more expensive but can be used for longer-term planning or leaving an inheritance.

• Joint life insurance (for couples): Designed for two people under one policy, this typically pays out on the first death. It can be a simpler option for couples buying a home together, although the policy usually ends once a claim is made.

Additional cover worth considering

Although life insurance alone provides sufficient cover, other policies can work alongside it for added protection:

• Critical illness cover: Pays out a tax-free lump sum if you are diagnosed with a specified serious illness during the policy term, such as cancer, heart attack, or stroke (subject to policy definitions).

• Income protection insurance: Provides regular monthly payments if you are unable to work due to illness or injury, helping to replace a portion of your income while you recover.

Please Note: The insurance products offered by Cavendish Online have no cash-in value at any time. If you stop paying your premiums, your cover will stop, your policy will end, and you will receive no benefit. If you have not claimed before the end of your chosen policy term, the policy will end, and no benefit will be paid.

How much does life insurance cost for first-time buyers?

The cost of life insurance for first-time buyers can depend on several factors such as your age, health, smoking status, and the level of cover.

In many cases, because first-time buyers are typically younger, premiums can be more affordable than people expect. For some people, cover can start from just £8 per month.

In general:

• Younger applicants in good health often pay lower monthly premiums

• Smokers or those with health conditions may pay more

• Higher levels of cover will naturally increase the cost

The type of policy you choose will also affect the price. For example, term life insurance is often cheaper than whole of life cover, as the policy only pays out if you die within the agreed term.

When should first-time buyers arrange life insurance?

Ideally, you want to arrange life insurance as soon as you have a mortgage offer in place, or at the latest, before you complete on your property.

This will help to ensure your cover is active from the moment you take on financial responsibility for your home. Some buyers may choose to arrange cover during their mortgage application so everything is already in place.

You can also take out cover later on if you wish. However, your premiums may be higher due to age or changes in health conditions.

Should joint homeowners get joint or separate life insurance?

If you are buying a home with a partner, you can usually choose between joint or separate life insurance policies.

Joint life insurance is often simpler, as it covers both of you under one policy and typically pays out on the first death. However, once a claim is made, the policy ends, and the surviving partner would need to take out new cover, which may be more expensive later in life.

Separate policies offer more flexibility, as each person is covered individually. Though in theory, this means two payouts could be made, it also means two premiums and more paperwork.

For more information, see our guide on joint mortgage life insurance.

What happens if you move house or remortgage?

If you move house or remortgage, your life insurance policy may need to be reviewed to make sure it still meets your needs.

In some cases, you may simply update your cover amount to reflect a new mortgage balance. In others, you may decide to take out a new policy if your circumstances have changed significantly.

You should also check whether your existing cover still aligns with your mortgage term and repayment structure. You may find the initial amount no longer provides the right level of protection after moving or refinancing.

Take the first step towards protecting your home

At Cavendish Online, we can help you compare policies across the whole market and find cover that suits your mortgage, budget, and future plans. You’ll also have access to personalised support from our protection specialists, so you can make the right decision with confidence.

Whether you’re looking for mortgage protection, a simple life insurance quote, or just want to understand your options, we're here to help.