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Do you need Life Insurance for a Mortgage UK 2024?

One of the biggest questions that people ask about life insurance is, “do you need life insurance for a mortgage?”.

The simple answer is ‘No you don’t’ and it is actually a myth that it’s a requirement to take life insurance to get a mortgage. On the other hand, it is strongly recommended that you should take out life insurance to protect your mortgage and your home, especially if you have young children.

Our life insurance experts have prepared a guide to help you to understand how mortgage life insurance works, and give you some answers to your question ‘do you need life insurance for a mortgage?’. According to recent figures, the average mortgage debt in the UK in 2024 is £185,000 and less than 40% of mortgage borrowers has life insurance to protect the debt.

Your mortgage is likely to be the biggest debt that you will hold in your lifetime, and therefore the largest financial obligation for most families. If you die then your mortgage debt will be passed on to your partner and your children.

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60-Second Summary – Do you need life insurance for a mortgage?

It’s a common misconception that you need to have life insurance to get a mortgage. This isn’t true, but life insurance can be essential in repaying your mortgage in the event of your death, so your loved ones don’t suffer financially. In this guide, we’re answering some of the most common questions about mortgage life insurance and busting those myths.

  • Mortgage life insurance (decreasing term) is a policy where the amount (£s) you are covered for decreases over time at the same rate that you repay your mortgage.
  • Most mortgage providers will not force you into getting life insurance if you don’t want it. They may recommend it though and it can be useful in proving financial security when you apply.
  • You don’t need to choose a specific mortgage life insurance policy to cover your mortgage. Other types of life insurance e.g. family life insurance (level term) could also be used to help repay your mortgage. They just aren’t designed for this specific purpose.

Life insurance comes in two main forms which are decreasing term assurance (mortgage life insurance) and level term assurance (family life insurance).

Decreasing term assurance (mortgage life insurance) was created in the late 19th century to protect mortgage loans provided by banks. A mortgage life insurance policy is specifically designed to protect a Capital & Interest (Repayment) mortgage.

The term ‘decreasing’ means that the amount of cover will reduce at roughly the same level as your mortgage balance. This means that this type of life insurance policy is specifically to protect the outstanding figure to clear your mortgage.

If you die and your mortgage life insurance pays out a lump sum then your home would then be debt-free for your family. Ultimately you would not want to leave debt on your property to your loved ones if you are no longer around to help with paying the mortgage.

Why do some mortgage lenders ask for life insurance?

There are some lenders who still have a requirement for certain borrowers to hold a life insurance policy for a mortgage. This can be if there are specific circumstances that mean there could be a higher risk against that particular loan.

If you have been asked to take life insurance to protect your mortgage then you should definitely question ‘why?’.

Is life insurance required when buying a house?

Historically you might have been asked to take out life insurance when applying for a mortgage. This was more prevalent in the 1960s and 1970s when mortgage interest rates and risks were higher.

It is a modern-day myth that this is still the case but the actual reality is that this is no longer the case. Some mortgage brokers might also tell you to take life insurance or even very strongly recommend you take life cover.

If you have got children then you should definitely consider taking out life insurance to protect your mortgage. As we have explained above, this simply means that your family would not have a debt on your family home if you were to die.

The other potential outcome is that your family may be required to sell the property or it may even be repossessed if they can’t keep up mortgage repayments.

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You shouldn’t be refused a mortgage just because you don’t have life insurance in most circumstances. Whilst we cannot cover every situation, as a general rule in 99% of applications, there are no requirements to take life insurance for a mortgage.

If your mortgage lender refuses to lend based on you not having life insurance then you should definitely ask why.

There are a number of reasons why you might be refused a mortgage, such as:

  • Affordability
  • Credit history
  • Adverse credit
  • Property construction
  • Valuation reports

Do you need life insurance for a mortgage UK?

There are some countries that still require you to take life insurance when you apply for a mortgage. Some of the countries that we are aware of that require you to take life insurance with a mortgage are:

  • France
  • Spain
  • Morocco
  • Middle East

If you purchase a property abroad then you might also be required to take life insurance to get a mortgage.

The UK is not currently one of the countries that require you to have a life insurance policy for a mortgage. It is possible that the rules might change in the future so you should always check the latest rules and regulations.

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You are not required to have a life insurance policy regardless of your mortgage type.

The most common type of mortgage in the UK is a ‘repayment’ (capital and interest) mortgage. This simply means that over the term of the mortgage you are paying an element of capital and an element of interest.

Do you need life insurance for a second mortgage?

A second (charge) mortgage or secured loan is where there are two lenders on the same property.

There are a number of reasons why you might want to take out a second mortgage, including:

  • Home improvements
  • Debt consolidation
  • Purchase other property (e.g. holiday or investment)
  • Gifted loan

Free mortgage life insurance advice

If you still have questions about how to get the best mortgage life insurance to protect your family home then you can contact our friendly experts for free advice and support.

Our team is passionate about getting the BEST protection for our customers regardless of their health, lifestyle, and occupation.

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Related articles

Resources

Financial Conduct Authority – Mortgage lending statistics December 2022

Finder – Life insurance statistics UK

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Is it worth paying for life insurance?

Yes, if you’ve got children or financial dependents then you should have life insurance to protect them if you die. Martin Lewis and the Financial Conduct Authority recommend that you take out life insurance to protect your family and your home. Generally, life insurance premiums start from as little as £5 per month and will be cheaper for younger adults.

Common myths about life insurance:

  • Life insurance won’t pay out (pays out 98% of claims)
  • People with medical conditions can’t have life insurance
  • Life insurance is expensive
  • Savings can be just as effective as life insurance
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Is life insurance worth it? - iam|INSURED

What is the average cost of life insurance per month?

Based on recent research carried out, the average cost of life insurance is approximately £38 per month and the average level of cover is £152,000. Life insurance premiums also vary dramatically from one insurance provider to another and you can reduce your monthly premiums by shopping around.

Fundamentally, life insurance premiums vary depending on your age, health and the amount of cover that you need, starting from as little as £5 per month. You can also get life insurance to protect your family and your home against financial loss if you die.

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Average cost of life insurance - iam|INSURED

What does life insurance cover you for?

Life insurance is a monthly renewable ‘term insurance’ contract that pays out a cash lump sum or regular payments on death to your family or beneficiaries. Policies are most commonly used for family protection or mortgage protection for your loved ones if you die and your household income reduces, plus the additional issues of losing a parent or carer.

Traditional life insurance will not exclude any pre-existing medical conditions and will cover suicide after 12 or 24 months. You can also use life insurance for business protection purposes as well as tax-efficient business life insurance for directors or key people.

What are the disadvantages of life insurance?

The biggest and most common problem that consumers have with life insurance is the cost and the monthly premiums. This is the top reason for policy cancellations and why more people don’t take out life insurance to protect their family.

Another key disadvantage with life insurance is that it holds no investment value, nor can you cash it in. Life insurance works like any other traditional general insurance policy (e.g. car insurance, house insurance, pet insurance etc.), you pay a monthly premium and it will pay out in the event of a claim. Some people decide to use savings instead of taking out life insurance but you need to make sure that you have sufficient savings to cover the costs of death for your family.

Why do I need life insurance?

The fact is that nobody actually ‘needs’ life insurance, but it is strongly recommended that families and couples have cover to protect their loved ones in the event of death. Martin Lewis recommends life insurance and says “this is something that every parent, partner, or person with any other type of dependent needs to consider”.

Life insurance financially protects your loved ones if you die and pays out a cash lump sum to repay your mortgage, pay for school fees, replace lost income, and pay for regular outgoings. Mortgage life insurance is not linked to your mortgage debt so you can use it to pay off some or all of your mortgage.

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