Is mortgage life insurance compulsory?

One misconception roaming about is that you are required to take out life insurance when taking out a mortgage loan. Although it's not mandatory to buy mortgage life insurance, you should still consider taking out a policy. In this article, we'll take a look at how it works and the types of cover available.

Is it a legal requirement to have life insurance for a mortgage?

There is no legal requirement to take out life insurance for a mortgage, though some mortgage lenders will advise you to do so. The most common reason why lenders want to see a life insurance policy is because they want to ensure the mortgage repayments can be made in the event of your death.

If you die before the mortgage is repaid, your lender will still expect your partner or spouse to make repayments.

In some cases, mortgage providers might not allow the mortgage to remain in place, with only one person left making the repayments. If so, the remaining balance would need to be paid in full in order to retain the property.

The main benefits of owning mortgage life insurance

There are two main reasons why you might want to purchase life insurance:

1. It helps provides financial protection for your loved ones.
2. It can help them pay off your mortgage after your death.

If your mortgage has already been paid off after taking out mortgage life insurance, your loved ones could use the money towards other payments, such as living expenses, funeral costs, paying off credit card debt and other outstanding debts.

It can also act as an inheritance for your children, perhaps helping them buy a home of their own. Should you decide you no longer wish to keep the policy, it can be cancelled without incurring any fees. Please be aware that your cover will stop once your policy is cancelled.

How does mortgage life insurance work?

Mortgage Life Insurance is designed to pay off mortgages when you die. It’s commonly purchased as a decreasing term life policy for those with a repayment mortgage. Like any type of life insurance, the policy pays out a lump sum if you were to die.

It can ensure that your loved ones will be able to keep your home if you pass away unexpectedly before your mortgage is repaid. This way, they won’t have to worry about making payments they possibly can't afford.

Each month you pay a premium to your mortgage insurance provider. Failing to keep up with your monthly payments can result in your cover being ended early. 

There are two main types of life insurance that can be used to cover mortgage payments:

Term life insurance

Unlike a whole life policy, term life insurance only covers you for a certain period of time (for example, 20 years). This makes it ideal for covering a mortgage, as you can set the policy length to how long you expect to finish repayments. For example, if you have a 30-year mortgage, then the term of your policy should reflect this.

Term life policies only pay out if you die within the set policy term. If not, the policy expires and you won't receive any money back for the premiums paid into your policy. There are two types of term life cover used to cover a mortgage:

• Decreasing term cover - The pay-out value of the policy decreases over the term of the policy. This policy type is popular with those who have repayment type mortgages.
   

• Level term cover - both the pay out of the policy is fixed throughout the term of the policy. This policy type is popular with those who have interest only mortgages. 

Can I get cover for more than one person?

For people who hold a joint mortgage, it’s often preferable to purchase a life insurance policy to cover both parties - this is known as joint life insurance. This type of life insurance plan protects two individuals under a single policy. Joint policies typically pay out after the first death of one of the policyholders, and the cover would then end.

Joint cover is ideal for couples who share responsibility for a mortgage and other finances. This way, if one of you were to die, the other would be left with enough money to cover financial commitments. Another benefit of joint life cover is that it can often work out cheaper than buying separate policies.

What happens if I die before my mortgage is paid off?

A mortgage is one of the biggest payments most of us will make in our lifetime. However, if you die before it has been paid off, your lender will expect your family to continue making repayments. If your family is unable to make payments, they may be forced to sell their home to cover the cost.

That's why mortgage life insurance is a great way to reduce the financial burden placed on your family if you die. The policy pay-out amount  can be tailored to the value of your mortgage. That way your family can clear the outstanding balance if you pass away

How much will mortgage life insurance cost me?

There are a number of factors that can affect the cost of your policy, such as:

If you have pre-existing conditions, you may need a medical exam. You'll also need to tell your insurer about your condition, if not, a future claim could be denied.

If you're covering a mortgage, you should already have an idea of how much money is needed to protect your home.

So do you need life insurance for a mortgage?

We certainly think so! If you're ready to apply for cover, simply use our online quote service. We'll help you compare affordable policies from leading providers, so you can get the best rates available. If you require further assistance, get in touch with one of our pecialist life insurance advisors.