One question that comes up during the mortgage application process is whether or not life cover is needed to apply for a mortgage. Find out what’s required, and what isn’t, to purchase a home.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Do you need life cover to apply for a mortgage?
Life cover ensures your family has the money they need to survive in the event of your death. The one-time lump sum pay out can pay off your outstanding mortgage meaning that your family’s home will be paid for and it is one less thing for them to worry about if the worst were to happen.
While it is extremely helpful and provides peace of mind that your loved ones will be provided for after you’re gone, it is not necessary to take out life insurance to apply for a mortgage. However, there are extreme consequences associated with not being able to pay your mortgage, including your home being repossessed or your family being forced to sell.
What insurance do you need?
Legally, the only insurance you need to get is buildings insurance. Buildings insurance covers your home against any damage that may need to be repaired. It only applies to the structural aspects like the walls, roof, floors, fixtures, fittings; insurance the covers the contents of your home will require a separate policy.
The reason why buildings insurance is the only insurance required for a mortgage is that your mortgage provider needs to ensure that the value of your property is preserved as it technically is their property until your mortgage is fully paid off.
If there were an accident, such as a fire and you don’t have buildings insurance to cover the repair costs, the value of your home would quickly depreciate. If that happened, your home would no longer be worth what you borrowed and that means your lender wouldn’t get back the full amount you borrowed.
Find out the benefits of life insurance
Even though it is not a legal requirement when you secure a mortgage, life cover is a cost-effective strategy to provide peace of mind to homeowners. If you want to avoid any issues for your family after your death, talk to a financial adviser about incorporating life cover into your financial plans today.
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