When you’re buying a new home (remortgaging an existing one), it’s not uncommon for your mortgage lender or broker to mention life insurance. But do you actually need it?

Why would you need it?

The purpose of life insurance is to help your partner, children or other dependents cope financially if you die. Your life insurance could be used to pay off some or all of your mortgage. Without life insurance, however, your family could be left with financial difficulties. This could mean that surviving family members would have to move into an inferior home and endure a lower standard of living. 

So, if you have anyone who relies on you financially to afford your home, like a partner or children, taking out a life insurance policy can give you peace of mind.  Even in the case of a “non-earning” adult, the loss of this person may well lead to the “earning” adult having to pay for childcare or/and give up work.

Is it expensive?

A range of policies are available in the market and the cost will depend upon age, occupation and medical history.  Generally, the cheapest form of cover is Mortgage Decreasing Term Assurance (MDTA).  The cover diminishes broadly in line with the mortgage balance during the term of the mortgage.

A range of additional benefits can be added such as Critical Illness Cover, Child Cover and Disability Cover.  Level Term Cover can be an alternative to MDTA where cover remains at a constant level throughout the term. This is useful if you envisage moving again in the future.

What happens if I can’t work?

It is recommended that you check your employment terms to clarify salary payments in the event of absence from work.  Most employers will provide some level of payment in the event of sickness, but this will be limited, and long-term absence will lead to a reduction in income.  Insurance policies are available to provide Income Protection to help make up a shortfall in salary.  SELF-EMPLOYED people are particularly vulnerable if having to endure a period of not being able to work.



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