When speaking of mortgages, the type of life insurance that banks and lenders are usually referring to when they are talking about life insurance is ‘Level Term Protection’. This is usually seen as an ad on/extra and not a requirement.
So, to be frank, no matter how convincing your banker sounds, you don’t technically need ‘life insurance’ to take out a mortgage.
Most people get life insurance so that their family is not placed in an uncomfortable position if you die before your mortgage is paid off.
Some banks may strongly advise you to take out life insurance with your mortgage however, to be 100% clear having life insurance with your mortgage is still totally your choice!
Some form of a mortgage protection insurance policy is enough to ensure the bank is repaid in event of your death. This would be meeting the basic requirements so that your spouse will not be encumbered with the increase in expenditures being taken solely from their income due to the loss of your salary.
A mortgage protection policy is a legal requirement for banks to give you a mortgage.
Additionally, you do not have to take the mortgage protection policy offered by your lender or go for type of policy recommended by them.
All that lenders are legally required to do is make sure that you have a mortgage protection policy in place.
So, even though it might seem like they have the final say and control, don’t worry!
They cannot refuse to offer you a mortgage based on your refusal to accept the policy they have offered you.
There are also some exceptions when it comes to getting mortgage protection insurance.
You can get a mortgage if you don’t have mortgage protection insurance in place due to the following circumstances;
- You are above the age of 50,
- You cannot get mortgage protection insurance (possibly depending on the reason),
- The property being purchased is an investment property,
- You have already taken out a life insurance policy.
Your only other legal requirement for a mortgage (when it comes to insurance) is building insurance.
This cover will protect your home against any structural destruction that necessitates repairs. Structural destruction in this case will usually include things like the walls and floors etc.
Learn more about Difference Between Mortgage Protection and Life Insurance?