Do I need life insurance to get a mortgage?
LIFE insurance may be the last thing on your mind when you buy your first home - but it's important to consider despite the cost.
The cost of purchasing a property is expensive enough without considering everything else.
Legal fees, surveyor's fees and Stamp Duty are some of the extra and immediate costs you have to fork out.
Insurance is an ongoing cost to bear in mind, but you might be wondering which types are compulsory.
Here's everything you need to know:
Do you need life insurance for a mortgage?
The simple answer is no. It's not a legal requirement to take out life insurance to get a mortgage.
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But, you might want to take it out to ensure your family is able to carry on paying the mortgage in the event you die.
Nick Mendes, from broker firm John Charcol, said: "Taking out a mortgage is likely to be the biggest financial commitment we’ll ever make in our lives.
"That’s why it’s important to have a backup plan and ensure you have the right protection in place to give you and your loved one’s peace of mind."
"Imagine what would happen if you were unable to work because of an accident, serious illness or even loss of life.
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"It’s not something that any of us would ever want to contemplate, but by having cover in place you can make sure that you can pay your mortgage, protect your family’s lifestyle, and have enough money to cover your everyday living expenses."
If you are thinking about taking out life insurance there are a few different types to consider.
Life insurance pays out to your dependents in one tax-free lump sum.
Dependents are those who rely on your income such as children, a partner or other relatives.
Life insurance is sometimes also known as term insurance.
There are two main ways the cover can be arranged:
- Level term insurance - when the level of cover remains the same throughout the length of the policy
- Decreasing term insurance - when the level of cover decreases over time
On top of this, there's also critical illness insurance which provides you with a tax-free cash payment if you are diagnosed with one of a number of "common" critical illnesses.
Some on the list include stroke, heart attack, cancer, Alzheimer's and multiple sclerosis.
Next, there's family income benefit.
This pays out in the event of a death, but instead of a one-off lump, you receive a tax-free income until the end of a policy term.
Then there's income protection. This covers you if you are involved in an accident or suffer an illness.
It pays out a monthly income to cover a proportion of your salary.
What insurance do I need to get a mortgage?
While you don't need life insurance as a legal requirement, in most cases you will need buildings insurance.
Most lenders will request that you have this in place before approving a mortgage.
Buildings insurance offers you financial protection if there's damage to the structure of your home, such as the walls, roof and floors.
It usually covers damage to fixtures and fittings too.
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You may also want to consider contents insurance that'll protect the possessions inside your home.
Nick added: "While there may be limited lenders that don’t consider building insurance as compulsory, I would strongly recommend to have buildings insurance as a minimum."
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