So you’ve found the perfect house and secured a mortgage. Is there anything else you need to consider? It’s the million dollar question: Do I need life insurance with a mortgage?
The word mortgage literally means “dead pledge,” derived from the Latin mort, which means “dead,” and gauge, which means “pledge.” It’s a contract that ends when the debt is paid off or when the payment fails. NOT when the individual who owes the money passes away.
It’s a crucial tiny detail to consider when looking at mortgages and life insurance. Mortgages are one of those things you can’t take to the grave. Despite popular belief, your mortgage debts don’t die with you. The truth is that if no one inherits the property to pay the mortgage, the estate of the deceased or the property itself will be sold to pay off any outstanding debt.
No one needs that additional stress when their loved ones dies, which is why many people prefer to cover their mortgage debt with life insurance. We’d say it’s rather considerate.
But, do you really need life insurance to secure a mortgage? Will lenders refuse to lend you money if you’re not covered? Nope. As long as you meet all other financial requirements, the vast majority of banks, building societies, and other mortgage lenders will gladly lend you the cash. No need for insurance.
Let’s face it: if you die or are unable to repay the obligation for whatever reason, the bank, building society, or provider already owns your property as collateral.
So they’ll be fine, even if you die without life insurance. Your dependents, on the other hand, not so much.
In answering the question on if you need life insurance when moving home, we should look to the law.
So, what’s the law on life insurance and moving home?
There are no laws, codes, or decrees in the UK that require you to get life insurance before being accepted for a mortgage or any other kind of loan. Unlike cars, which require insurance before you can start driving, with mortgages, all you have to do is show the lender that you have the money to make the monthly repayments.
It’s pretty clear then: life insurance isn’t a mortgage policy requirement, and neither is it a legal obligation.
We get it, sensibility might not be the coolest thing in existence.
Sensible isn’t one for going on adventures. But while there’s no obligation to get life insurance – for a mortgage or for any other purpose – it’s a good idea to have some financial protection in place.
A mortgage is almost certainly the largest debt you’ll ever have. As a result, if you die before paying off the last doorknob, it may be the largest debt you leave behind.
It’s a no-brainer if you have children, a partner, or anyone else who relies on you. Even if your mortgage bears both your and your partner’s names, it was most likely approved based on your combined income.
So, if one of you dies, the other could be left in a financial pickle if the mortgage isn’t paid off.
Life insurance can give you and your loved ones peace of mind by ensuring that your bills are covered after you die.
Top tip: Although life insurance isn’t necessary for a mortgage, some cheeky mortgage providers might try to persuade you to buy their or their partner’s life insurance. And although being covered is generally a good idea, making your decision there and then can result in customers paying exorbitant life insurance premiums, and could even be considered mis-selling. Do your research and don’t make any hasty decisions.
If you’re concerned that you were mis-sold life insurance as part of your mortgage, contact the Financial Ombudsman Service.
When moving home and looking at insurance don’t get stitched up with pricey life insurance if you want to cover your mortgage.
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