Mortgage Applications: Do I Need Life Insurance?

When you buy a new home, insurance is one of the main things you will need to consider. However, although you probably know that home insurance is an essential purchase, you may be less clear about other types of insurance—especially life insurance.
So, do you need this when you apply for a mortgage?
Life Insurance Not Required for Mortgage Applications
The short answer is no, you do not need to buy life insurance when you take out a mortgage. Your mortgage broker may recommend getting it, and they may also have a policy ready for you to purchase. However, it is not actually a requirement.
Whether you could benefit from taking out a policy is another matter. This is a personal decision that comes down to carefully considering your own situation.
Why Buy Mortgage Life Insurance?
When you buy a life-insurance policy specifically to protect your mortgage, it is known as mortgage life insurance or mortgage protection. This is a special type of life insurance that covers your mortgage payments in the event that you die before you have finished paying off the mortgage. Sometimes it covers part of your mortgage, and sometimes all of it, depending on the product you buy.
The most common type of mortgage life insurance is called Decreasing Term Insurance. This type of coverage pays out the amount that remains on your mortgage, which goes down as the years go on.
Level Term insurance tends to be more expensive. This pays out a lump sum, and it can be used to pay off an interest-only mortgage.
The question of whether you need it or not comes down to your own situation. Specifically, you need to consider whether your dependents would be able to continue paying the mortgage in the event of your death. If the answer is most likely no, then insurance can help to provide you with peace of mind, knowing that they will be protected from having to make mortgage payments.
It may be the case that you are the biggest earner in the family, or it may be that you and your partner both earn the same. The fact remains that if the surviving family members would struggle to pay the mortgage, insurance would be very useful.
Why Might You Not Want Insurance?
In some situations you may decide not to take out insurance. For example, if you already have Level Term life insurance, this pays out a lump sum if you die within a set period of time. If you have this already, you may decide that it is unnecessary for you to purchase mortgage insurance, as well.
If you do not have any dependents, you may also be less inclined to purchase life insurance. Then again, it is often considered a good idea to have insurance, even if you have no dependents because leaving people to inherit your property can cause problems if the mortgage has not been paid.
Mortgage Payment Protection Insurance
Another type of insurance that you may have heard of is mortgage payment protection insurance. However, this is not to be confused with mortgage insurance.
This type of insurance covers your mortgage payments should you become redundant or be unable to earn due to ill health. This may or may not be a good idea, and it depends on your circumstances. Just remember that it may pay out for only a maximum of 12 months, although some do pay out for longer. If you have savings or you think that you could continue to pay your mortgage in the event that you stopped earning, you may prefer not to purchase this.
Buying Your Life Insurance
If you do decide to buy mortgage life insurance, remember that you do not have to buy it from your broker. Your mortgage broker may well try to push you to buy their own product because they will likely earn a commission on it. However, you always have options, and you may want to shop around and compare deals on a comparison site in order to find something more suitable elsewhere.
Life Insurance: Not Required, but a Very Good Idea
Life insurance is not a requirement when you apply for a mortgage, but you may well find that it is recommended by the mortgage broker. It is up to you whether you invest in this type of insurance or not, but you may want to carefully consider your circumstances and decide whether it is something from which you could benefit. If so, take your time looking for an insurance provider and find a policy that looks suitable for you, without being pressured by your mortgage broker or anyone else.