For a lot of people who are considering getting a mortgage the question; “do you need life insurance for a mortgage” can vary! Of course when you think about the reality of the situation and how many people you personally know who have had a serious illness or died it suddenly becomes a bit more real! The reality is, it can happen to any of us at any age and at any time, and if you have a family there are other people to think about too. Read on to find out a bit more about your options if you are getting a mortgage.
Do I have to take Life Insurance with a Mortgage:
Life insurance has in the past been sold as a requirement when getting a mortgage, which it isn’t (usually)! It might be a sensible idea, but it is not always a requirement of getting a mortgage. Unless the lender makes it a prerequisite, which only tends to be the case with commercial finance, then generally it's not. Click To Tweet However, that’s not to say a residential lender won’t. Indeed we’ve set up policies for clients who because of their ages and the mortgage terms, the lender insisted and made it a requirement of the mortgage that life insurance was in place.
The bottom line is this; if you are determined and convinced you don’t need it, please don’t waste any more time reading the rest of this blog. If on the other hand, you have a sneaking suspicion that it might be important, then read on:
Reasons to have Life Insurance when getting a mortgage:
Single Person getting a mortgage:
If you are getting a mortgage here are a few ideas why life insurance might be a good idea (here is a previous blog I wrote 5 reasons to have life insurance).
If you are a single person buying a property and getting a mortgage with no children, the reality is you probably don’t need life insurance to protect your mortgage. Click To Tweet If you die you have no one relying on you and no one necessarily to leave the house to. Of course, you may want to leave your house to your parents without them having the hassle of having to sell it to repay the mortgage. It will generally come down to the individual and what they want and there is certainly no right or wrong answer. But generally a single person doesn’t really need life insurance unless there is a good justification for it.
However, in the current market where properties are taking longer to sell, it may be worth considering. Leaving the property behind with a mortgage to be paid for while a buyer can be found would cause an undue burden on family. For the sake of a few extra pounds a month, as life insurance is generally cheaper the younger you are, you could ensure you leave a clean slate.
Couple getting a mortgage:
On the other hand if you are buying a property and getting a mortgage with friends, a partner, family or you have children then it may be more important to think about the consequences if one of you were to die. Maybe if you are a couple with no kids, you are happy to take a risk. How much of a difference would it make if your partner was to die and you were left to pay the mortgage on your own? I’m sure we could all afford that eventuality.
If you have children, personally I think it would be irresponsible not to have life insurance (but that's just my opinion). Click To Tweet Of course it is still down to the individual and whether they see the need for life insurance. We all hope of course it is a waste of money as we don’t want our clients, friends, partners dying prematurely (or at all if we really like them – lol) but the reality is that a few will.
It’s an adviser’s responsibility to make you aware of your life insurance options when getting a mortgage
At Barr Financial we have a set of rules which forms part of our treating customers fairly policy.
The rule about protection is clear. When we see you about arranging a mortgage we have to talk about life insurance, income protection and family protection.
If we don’t then we are letting you down. Click To Tweet Obviously you don’t have to take our advice to protect these aspects of your life but it is our duty of care to talk about it and make you aware.
If you have a general question about life insurance, critcal illness cover or even income protection, feel free to ask one of our experts a question:
Life insurance for a mortgage is not expensive, but not getting advice is!
Most of the people we see when they are looking to get a mortgage expect life insurance or income protection to be way too expensive for them. The truth is – it’s not cheap but often less than you think. But it’s not always about price it’s about affordability and making sure its right for you.
The next step after deciding it is important for you to get life insurance is to make sure it is the right cover for you. Click To Tweet Factors such as the amount of your mortgage, the term of your mortgage, the type of mortgage all need to be considered in establishing the right level of life insurance.
Again as independent mortgage brokers who help advise on the right mortgage option, we are also qualified to independently advise you on your mortgage protection requirements (if that’s what you want).
Once the correct level of cover has been established the next factor is usually price and getting the cheapest life insurance quotes. When it comes to life insurance, generally the cheapest is the best, but there are sometimes lots of other considerations to make such as guaranteed or reviewable premiums, indexation, level or decreasing cover and more. This is where getting advice is important. Oh and did I tell you we don’t charge for this service…its completely free for you!
The only way you are going to be able to get a good overview of all the options in the market is to seek independent advice from a specialist like us. Comparison sites appear to offer choice (which they do), but it is often from a limited panel not all the providers. The other options are applying to one provider such as Aviva, but you are only getting one quote, or you could pop into your bank (like most people do) and also have only one choice. With banks you are almost always paying more than you have to, and usually quite a bit more.
Price comparison website warning for life insurance!
A couple of warnings on comparison websites;
The second, is most online platforms sell on a non-advised basis. In other words, they don’t care if its right for you or not. They put all of the responsibility on you! Now if you are okay with this, then fine. But if you are serious about getting life insurance for a mortgage (or any other reason), wouldn’t it make sense to make sure you are doing it properly and get a professional to offer their advice?
Comparison websites often do not offer all of the options in the market. The very fact you want to look at a comparison website is probably because you want to look at as many options as possible to get the best price, but the reality is you aren’t looking at all the options! So it’s a false and misleading perception.
The only way to get the best price for your life insurance is to search the whole of the market, and the only way to do this is by getting independent advice.
Why a mortgage broker is perfectly placed to help with life insurance?
Oh and did I say, if you are getting a mortgage, why not get in touch as we are independent mortgage brokers.
Not only can we independently look at the whole market for your mortgage, we also do the same for your life insurance. The advantage is you've then got a professional team who can look after everything for you. Click To Tweet
One thing to remember is your circumstances will and does change over time and a good adviser will make sure when your circumstances change, they will advise if your protection needs amending too. Of course it might not, but they will know.
Don’t forget if you see the need in protecting yourself and your loved ones, then surely you should see the need to make sure it is always relevant and designed for what you originally hoped for.
Don’t just assume what you did 5 years ago, is still going to be relevant now. You might have moved home, borrowed more money, changed the term of the mortgage, got another mortgage out, had more children, got a new job…there are a million and one things that can change. So if you see the need for protecting you and your family, at least make sure you do it properly.