Do you need life insurance to get a mortgage?
Life insurance policies, especially decreasing term policies, are often taken out by people with mortgages to pay. These policies offer security that the mortgage will be paid off should the policyholder die before the term ends, and the homeowner’s loved ones aren’t left without a roof over their head. But do you need life insurance to qualify for a mortgage?
Legally, you don’t need life insurance to be approved for a mortgage. However, many lenders will require you have a policy in place as a condition of the loan. This is because they want to ensure they’ll be repaid, even if you should die.
In these cases, you’ll be advised to take out a decreasing term life insurance policy aligned with your mortgage term and the amount borrowed. If you die during the term, your survivors will receive a pay-out equal to the outstanding balance on the loan, allowing them to pay off the mortgage.
If you’re taking out a mortgage with a spouse or partner, you can both be protected through a joint life insurance policy. These policies issue a pay-out following the first death and can be cheaper than taking out two single life policies, and it will meet mortgage lenders’ requirements.
Regardless of whether it's required, taking out life insurance is a sensible precaution when you purchase a home with a mortgage. Your mortgage payments will likely make up a large part of your family’s monthly expenses.
With life insurance, those costs can be covered through a regular income or a lump sum paying off the loan. That will ensure your family can continue living in the home after your death and your surviving partner isn’t left to shoulder the debt alone.
Some mortgage lenders will offer to sell you a life insurance policy alongside the loan or direct you to a preferred insurer. However, you’re not obligated to use their recommended provider and you may be able to find a suitable policy for cheaper elsewhere.