A question we often get asked is do you need life insurance to buy a house? The short answer here is no, it is not a legal requirement. Despite this, it is an important insurance that you should consider when you purchase a house or experience other major life changes such as the birth of a child.
It can feel quite daunting when you buy a house, especially if you’re purchasing your first home and you’re taking out a mortgage. After you have spent hours researching interest rates and mortgage terms you might be shocked to discover you also need to take out insurances.
House insurance is a compulsory requirement by all lenders – this type of insurance protects the lender as an investor as it means if your house is damaged or destroyed it will be repaired or rebuilt using the insurance policy (which protects their asset, as they technically own your home whilst you are repaying your mortgage).
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But what about other insurances? Contents insurance is not compulsory, however most people want to look after their valued possessions so they take this out at the same time as they purchase house insurance.
Life insurance can often be forgotten about. As it’s not an insurance that’s legally required in order for you to purchase a home, and it’s not directly connected to any other insurances (like house and contents policies) it can be overlooked. Sometimes purchasers don’t want any extra costs on top of their mortgage so they only take out the insurance they are obligated to; but we think that if people understand what life insurance is and what the benefits are they might realise it’s worth.
What is Life Insurance
Life insurance is very simple and straightforward. This type of insurance provides a tax free lump sum amount that is paid out if the person insured passes away (or with some policies if they are diagnosed with a terminal illness). This amount can be used to cover everyday expenses, make loan repayments and/or pay off a mortgage. It essentially replaces the income lost when a family member (the person insured) is no longer around.
What are the benefits of Life Insurance when buying a house?
Despite not being compulsory, life insurance is one of the most important insurances you can purchase. So, although you don’t need life insurance to buy a house, there are several benefits of having a life insurance policy.
Some of these benefits are:
You can choose the amount of insurance you want
You can insure for any amount you want – but bear in mind that as you increase the amount you’re insured for, your premiums will also rise.
You can use your lump sum to pay off your outstanding mortgage
In the event that you were to pass away, a lump sum payment would take a lot of stress away from those you leave behind. This is especially true if the payment is used to help towards mortgage costs.
Your lump sum payment can be used for anything
Unlike products such as mortgage protection insurance, life insurance can be used to pay for anything. Most people do use a lump sum to cover the cost of a mortgage but people also often like to add in an amount to cover things like their funeral costs or school fees.
How Much Life Insurance Do I Need when buying a house?
The amount of insurance you take out depends on a number of things including your family circumstances, your future plans and your current financial position. The majority of policy holders take the amount owed on their mortgage as a starting point and then add on any extras they may wish to cover (such as their partner’s retirement costs, or children’s school fees). Every person is different and each policy is unique and it definitely helps to discuss your needs with an expert to make sure you have enough cover whilst staying within your repayment budget.
At Lifestyle Solutions we make organising life insurance easy. If you’d like to discuss options for life insurance to suit the needs of you and your family, or review your current policy please contact us for individually tailored lifestyle solutions.
Disclaimer: The information contained in this blog is an overview and general information only. It may not be relevant to your individual circumstances. Before making any investment, insurance or financial planning decisions, based on information provided in this blog, please use your discretion and consult a professional adviser first. You can read our full disclosure statement here.
