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Monday Myth-Buster: Do I need life insurance to get a mortgage?
While you don’t necessarily need life insurance to get a mortgage, it’s certainly something you should be looking at if your family are dependent on your income to cover your mortgage payments.
A lifeline when they need it most
It can be tough to talk about what will happen should you pass away, but it’s important to make sure your family are protected in the event that the worst does happen. While you may not legally have to take out a life insurance policy to get a mortgage, it’s something you must consider if your family rely on your income – or part of it – to pay the mortgage.
Put simply, if you die and your loved ones are dependent on your income to pay the mortgage, having life insurance means they can continue to pay the mortgage and stay in your family home.
If you don’t have insurance, the chances are your partner won’t be able to continue to pay the mortgage, which means they’ll have to move out. This can be incredibly stressful at a time when your family will naturally be grieving the loss of a loved one. This is why it’s so important to find the right life insurance policy to cover your mortgage.
When you take out a policy, you should be able to choose whether your family get a regular monthly payment or one lump sum when you die.
You should also be in full control of your policy, and your insurer should give you the option to choose what you want the money to go towards - so you can specifically ask for it to go towards your mortgage or rent if you wish.
Check with your employer
In some jobs, your employer may include a death in service benefit, which provides your family with some financial protection if you die. Often, the amount of cover you have is based on your salary – maybe four or five times what you earn in a year.
This cover might be enough for you, but it’s worth considering life insurance on top of it if you don’t think it will be enough to cover your mortgage. And remember, this type of benefit won’t go with you if you quit your job or are made redundant. You should look to life insurance if you’ve moved on to a different job that doesn’t offer a death in service benefit.
What if nobody depends on my income?
Of course, if you live on your own, or you don’t live with anyone who depends on your income to pay bills, you may decide you don’t need life insurance. Similarly, if your partner earns enough to continue to cover the mortgage if you die, you might not feel you need life insurance either – but it may add an extra cushion of support in a worst-case scenario.
No matter what your plans, it’s always a good idea to have a pot of savings set aside. If anything, it could provide your loved ones with a helpful fund to cover funeral costs.