Do I need life insurance for a mortgage?

Below, we explain what mortgage life insurance is, and whether you need it when buying your own home.

What is mortgage life insurance?

Mortgage life insurance is a type of life insurance policy that is designed to pay off the remainder of your mortgage if you die during the term. This gives you the peace of mind that should you pass away, your partner/spouse and dependants won’t have to worry about making mortgage repayments or, in the worst case scenario, be forced to sell their home. If you’re diagnosed with less than 12 months to live, many policies will pay out at that point.

Is life insurance a legal requirement for a mortgage?

While life insurance isn’t a legal requirement, mortgage cover is a simple way of ensuring that your home is protected, even when you’re not around. Many lenders will also stipulate that you must have life insurance in order to get a mortgage, although you might want to shop around rather than buy the policy they offer you.

Mortgage life insurance can sometimes be called 'mortgage cover' or 'mortgage protection'. You might also see the term 'assurance'. While ‘insurance’ is for an event that might happen, ‘assurance’ is for an event that will happen. For example, life insurance policies will pay out should you die during a set term, whereas life assurance policies provide cover for your whole life (also known as whole of life cover).

Types of mortgage life insurance

There are several types of mortgage life insurance, meaning there’s likely to be a policy to suit your family’s needs and circumstances.

You can find out more about each of these types of mortgage life insurance on the Zurich life insurance page.

Decreasing term insurance

Decreasing term insurance is designed specifically for mortgages. It can provide cover for the term of your mortgage, with the potential payout decreasing gradually to reflect the balance you have left to pay. Because the potential payout gradually decreases, the premium paid is typically lower than with level and increasing term policies. Decreasing term cover is not suitable for interest-only mortgages, where the balance does not decrease over time.

Level term life insurance

Level life insurance covers you for a specific time, which you can set to match your mortgage. If you die during the term, your beneficiaries will receive a payout they can use to pay off a mortgage. You can choose a higher level of payout so they receive an extra lump sum to cover living expenses. With level life insurance, the potential payout does not decrease over time. This is a more suitable cover for interest-only mortgages.

Increasing term life insurance

You may also come across another type of life insurance – increasing term cover. This allows you to increase your potential payout each year (your premiums increase too). This type of cover is typically less suitable for mortgages, but can be useful if you want to protect yourself against rises in the cost of living.

Mortgage protection-free cover

Mortgage protection-free cover – also known as mortgage free cover - is a special feature available through some policies and is designed to cover the period between when you exchange contracts on a home and complete the purchase. When you exchange, you enter into a binding commitment and your lender may stipulate you need insurance, but you might prefer not to take out full cover until completion.

Critical illness cover

Critical illness cover is designed to provide you with a lump sum payment if you suffer a serious illness. It covers a wide range of conditions, such as heart attack, stroke, advanced cancers, dementia, or loss of a limb. This can provide you and your family with a financial cushion from the point that you are diagnosed. You can also add cover for your children with some insurers.

If you extend or change your mortgage, or your family circumstances change, you should check that your policy still provides the right level of cover to keep your family protected. If you already have a Zurich policy, you won’t need to take out a new policy, as these changes are already covered.

Mortgage life insurance shouldn't be confused with mortgage payment protection insurance, which is designed to cover your mortgage payments for a set period if you are made redundant or become too ill to work.

Do you need life insurance with a mortgage?

If you’re still wondering Do I need life insurance?, here’s a reminder of some of the most important things to consider.

• You should certainly consider life insurance if you have a partner or dependants, such as children, still living with you. With life insurance, you will have the peace of mind that they’ll be protected financially and able to stay in the family home should you die.
• If your spouse or partner would find it hard to meet the mortgage repayments without your salary, then mortgage cover might give you peace of mind. It would be one less thing for them to worry about at a very difficult time.

However, life insurance isn’t essential for everyone. You might have savings that could be put towards repayments, an alternative life insurance product, or an employer’s death-in-service benefit. Whatever you do, you should check that the amount payable would be enough for your dependants’ needs.

See Death in service benefit and Life insurance: What’s the difference?

If you have no partner or dependants, then mortgage cover probably isn’t essential.

Considerations when applying for life insurance

When you apply for life insurance, you will be asked a few questions about your health and lifestyle to determine how much you will need to pay each month. In certain circumstances, you might be asked to complete a life insurance medical exam covering factors such as your weight, blood pressure and family medical history to estimate your risk of developing health problems. If a medical exam is required, your insurer will contact you to make arrangements and there will be no cost to you.

If you’re a smoker or an ex-smoker, you may be worried about how smoking affects life insurance. You will probably have to pay higher premiums, which might drop once you have given up for a certain length of time – usually one to five years. Most insurers put vaping in the same category as smoking.

Still have questions about life insurance?

You can try Zurich’s life insurance calculator to work out how much cover you might need.

Read Single or joint life insurance: Which is right for you?

Or read our life insurance guide to find out more about protecting your family and home.