life insurance for mortage

chatterboxchris

I thought that if you take out a mortgage then you have to have life insurance,but have just been told this isnt true !

Quentin

You learn something every day.

Just shows you what a good job the brokers do in implying that!

lisyloo

Normally it's not a term and condition of a mortgage, although in many cases it would be sensible/desirable particularly where there are dependents.

It's normally a condition that you have buildings (not contents) insurance although in my personal experience lenders don't check.
The reason for this should be obvious i.e. your whole house could burn down.

Quentin

lisyloo wrote: »

The reason for this should be obvious i.e. your whole house could burn down.

If you think that is the "obvious" reason why mortgagees insist on buildings insurance it's a little naive.

They aren't bothered whether or not the mortgagor is left homeless, their only concern is the house is rendered valueless whilst they still have an interest in it.

lisyloo

They aren't bothered whether or not the mortgagor is left homeless, their only concern is the house is rendered valueless whilst they still have an interest in it.

That's exactly what I meant.
If your house burns down then their security (and their money) is probably gone if you are uninsured.
I didn't mean homelessness, I meant the loss of their asset.
I realise that in this case the homeowner still owes the money, but in the vast majority of cases they (the borrowers) won't have the money to pay back the lender.

Quentin

There are other reasons that concern the mortgagor than the chance of a fire.

(If you were correct in your post, then they would just insist on insurance against fire!)

lisyloo

Yes, their primary motivation is the loss of their asset however that is caused.

But this is rather going off at a tangeant (yes I know I started it, but let's not continue).
The orginal question was about life insurance.

It's my belief that sales people use language in order to aid sales (hopefully that's hardly controversial).
So someone who was not particularly scrutinising what they were saying may easily get the impression that it's a requirement of the product.
e.g. the sales person might say "Yes, you need life insurance" which the borrower may interpret as a requirement rather than an opinion on the needs of the borrower.

somewhatnew

There used to be a problem back in the day called 'conditional selling', i.e. we will only let you have a mortgage if you buy our insurance cover. This has since been ruled illegal.

Depending on your circumstances a lender can require as part of your mortgage agreement you need life insurance (or indeed any other insurance they like). If you a riskier prospect to lend to, such as a first time buyer, an older couple or borrowing a high amount against your property this is still a clause they can insert but rarely do.