Life Insurance for First-Time Buyers

The first mortgage is the moment a household stops being able to absorb a shock.

Renting is expensive and it is also flexible: you can give notice, move somewhere cheaper or move in with somebody. A mortgage is a fixed obligation for a couple of decades, taken on at the point when most people have spent their savings on the deposit.

That combination, maximum debt and minimum cash, is why protection comes up at this stage and why it is worth doing rather than deferring.

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The short answer

A first mortgage is usually the largest debt somebody will ever take on, and it is the first time most people have a commitment that outlives their savings. Life cover is not legally required for a residential mortgage, though lenders often ask about it, and the more useful question at this stage is what happens if you are ill rather than if you die, because at first-time-buyer age illness is far more likely.

What this changes

You now owe a large sum over a long period, usually just after spending your savings
The flexibility renting gave you is gone: you cannot give a month's notice on a mortgage
If you bought with somebody, each of you is liable for the whole mortgage rather than half
Maintenance becomes your problem, and it arrives at inconvenient times
You may have been offered cover by the lender or broker at the same time, often without much comparison
This is usually the cheapest point in your life to buy protection, because you are young and well

The bit people miss

Joint borrowers almost always assume they are each responsible for half the mortgage. They are not: joint mortgages are normally joint and several, which means the lender can pursue either person for the whole amount. If one of two buyers dies or cannot work, the other does not owe half, they owe all of it, on one income, in a house they may not be able to sell quickly. That is the specific risk at this stage and it is rarely explained at the point of purchase.

Joint And Several Means You Owe All Of It

This is the thing first-time buyers are least often told and it changes how much cover two people need.

A joint mortgage is normally joint and several. That phrase means each borrower is liable for the entire debt, not for their share of it. If one of you stops being able to pay, for any reason, the lender does not halve the payment. The other person owes the full amount on whatever income they have left.

So two people buying together are not each insuring half a mortgage. Each is insuring a liability for the whole thing, and cover arranged on the basis of halves leaves a gap exactly when it matters.

This Is The Cheapest It Will Ever Be

Protection is priced on age and health, and first-time buyers are usually at their best on both.

Premiums rise with age, and anything that appears in your medical records between now and later becomes something an insurer takes into account. A policy taken out at twenty-eight on clean terms stays on those terms for its whole life, even if your health changes the following year. The same cover arranged at forty, after a back problem or a raised blood pressure reading, costs more and may carry exclusions.

That is not a reason to buy something unsuitable in a hurry. It is a reason not to treat protection as something to sort out once the house settles down, because the price of waiting is paid later and quietly.

What usually fits, and why

Income protection

Usually the most useful at this age, because a long illness is far more likely than a death and the mortgage does not pause for either.

Life cover

Sized and termed against the mortgage is the obvious start, and for joint borrowers it should reflect that each is liable for the whole loan rather than half.

Critical illness cover

Pays a lump sum that can clear or reduce the mortgage, which is what makes a reduced income survivable afterwards.

Common questions

Do I legally need life insurance for a mortgage?+

Not for a residential mortgage in the UK. Lenders frequently ask whether you have cover and some make it a condition of their offer, but it is not a legal requirement. The practical question is different: if you could not pay the mortgage because you had died or could not work, what would happen to the house and to whoever lives in it with you.

We bought together. Do we each insure half?+

No, and this is the most common misunderstanding at this stage. A joint mortgage is normally joint and several, which means each of you is liable for the whole debt rather than half of it. If one of you cannot pay, the lender does not halve the payment. Cover arranged on the basis of halves leaves a gap exactly when it is needed.

Should I take the cover the lender offered?+

Have a look at it and do not assume it is the best available simply because it arrived at the right moment. It is worth comparing across the market, checking the term and the definitions rather than only the premium, and making sure it is written in trust if that suits your circumstances. That is the sort of comparison a broker does.

What should I buy first on a tight budget?+

At first-time-buyer age the likeliest claim is a long illness rather than a death, so income protection often does more work than life cover, particularly if nobody depends on you financially. If you have bought with someone else, life cover matters immediately because of the joint and several liability. We can show you what each costs so you can decide with real figures.

Is it worth arranging now or after we settle in?+

Now, if you can. Protection is priced on your age and health at the point you apply, and a policy taken out while you are young and well stays on those terms for its whole life. Anything that appears in your medical records in the meantime becomes something an insurer takes into account later.

Cover that often goes with this

The gaps we most often find sitting next to this one.