In the UK, it’s not compulsory to buy life insurance when you take out a mortgage, but mortgage brokers do tend to recommend it as an effective way of protecting your mortgage. In fact, taking on a mortgage is one of the most common reasons for getting covered.
Why? Because a mortgage is usually the biggest sum of money you’ll ever borrow in your life, so naturally it’s a debt people are keen to insure as soon as possible. No-one wants someone else to be left liable for their debt, or for their home to be repossessed if they die – instead of being left to their loved ones.
If you’ve got a mortgage, this guide to life insurance for homeowners will help you unpick the basics.
What is life insurance?
Life insurance is a policy that pays out a tax-free lump sum to your partner, family or person of your choice if you die. If you own a home, you’re likely to have a mortgage – and if you die, this debt would be passed onto your loved ones. Having sufficient life cover means it can be paid off easily and your loved ones can keep your home.
How does life insurance work?
It’s simply an insurance policy that pays out a sum of money if you die. When you buy life cover you agree to pay a monthly amount in return for the lump sum, paid out after your death. If you’re taking out life insurance specifically to protect your mortgage, you might choose to buy decreasing term life insurance, in which case the lump sum paid out reduces in line with paying off your mortgage.
Read more about different types of life insurance here.
Why is life insurance important for homeowners?
Because most homeowners have a mortgage – which is a debt that could be passed onto your loved ones if you die. Having life insurance in place means your mortgage can be paid off in one go, and also means your family get to keep your property. The brutal reality is that without life insurance, your home could be repossessed if you still have a mortgage when you die.
If you're a homeowner with a mortgage, life insurance is a simple, logical way to protect it. What’s more, it's often money that’s straightforward to claim if and when you do die – which can’t always be said for any other savings or assets you might leave behind.
When’s the best time to buy it?
Ideally, as soon as you get a mortgage. Especially if you have financial dependents who could be left liable for the debt if you die. Also, don’t forget: the younger and healthier you are, the cheaper life insurance is. This is because you pose less of a risk to the insurer in terms of having to pay the policy out.
- If you die with an outstanding mortgage, your loved ones could be left liable for the debt and your home could be repossessed
- Life insurance is a simple way to protect your loved ones financially if you've got a mortgage
- A life insurance payout could pay off your mortgage in one and allow your loved ones to keep your property
What is life insurance?
Who needs life insurance?
How much does life insurance cost?
Does life insurance always pay out?
Is it easy to claim?
This post is intended for informative purposes only and does not constitute advice.