Can You get a Mortgage Without Life Insurance?
Many mortgage lenders now insist on potential borrowers getting suitable life insurance before offering them a loan. This has led to some confusion, with people often wondering ‘Can you get a mortgage without life insurance or is it compulsory to have it?’ Read on to find out…
Why Mortgage Lenders Insist on Life Insurance?
Having life insurance to get a mortgage is not compulsory. However, taking out a mortgage is a major financial commitment. Honouring this commitment is vital if you do not want to risk losing your home. It is therefore essential to have a ‘back-up plan’ to ensure your mortgage is repaid in the event of something unforeseen happening.
As far as lenders are concerned, life insurance with (usually optional) critical illness cover is the ideal back-up solution, as it ensures the mortgage is repaid in the event of a household’s main income provider becoming critically ill or passing away.
Call us on 01279 315 013 now to see how we can help with a tailor-made protection plan to suit your budget.
Types of Life Insurance
The type of life insurance that is suitable for you, will depend on the type of mortgage you intend to take out. While there are several different options, the two main types usually selected are level term insurance and decreasing term insurance.
Level Term Life Insurance
For an interest-only mortgage, choosing a level term life insurance would be ideal. During the term of an interest-only mortgage, all you pay each month is the interest accrued, with the outstanding debt on your loan remaining fixed until the end of the mortgage’s term (usually 25 years), at which point the full outstanding amount becomes due for payment in full. Level term insurance cover also remains fixed, as do the premiums you pay each month.
If, for example, you take out a policy with a cover amount of £300,000 at the beginning of the term, the cover will still be £300,000 at the end. This provides you with the secure knowledge that your mortgage will be paid in full should you die at any point during the term of the policy.
Decreasing Term Insurance
With repayment mortgages, the amount you owe gradually decreases over the duration of the term. It is therefore practical to take out a decreasing term life insurance, where the cover gradually decreases over the policy’s full term.
Critical Illness Cover
Many policies provide the option to add critical illness cover. Covering a wide range of conditions (this varies between policies/insurance providers) and disability, this type of cover ensures your mortgage can be paid off if you are diagnosed with a critical illness or in case you become unable to work due to a serious illness or disability due to an accidental injury. Adding this cover is, therefore, a wise decision that will protect you and your family against the loss of your home should you be diagnosed with a critical illness.
So, Can You get a Mortgage Without Life insurance?
In a nutshell, yes, you can get a mortgage without life insurance. It is, however, highly recommended to take out a suitable policy with adequate cover to ensure your family home is protected in the event of your death and critical illness.
Getting the Right Type of Policy and Cover
Selecting the right policy and getting adequate cover can be rather confusing. We are experts with access to the leading insurance providers in the UK and we will advise on the best and most suitable cover to protect your mortgage. Please get in touch using our contact form or call us on 01279 315 013 to learn more.