A Complete Guide to Life Insurance for First-Time Home Buyers
- Adrian Collins
- Jul 25
- 7 min read
Updated: Aug 15
If you're a first-time buyer getting ready to move into your new home, your mind is more likely to be focused on buying furniture and decorating! You’ve spent months planning your move in day, so life insurance might not have crossed your mind. That’s understandable with so much going on. However, life insurance is an important part of buying a property and should not be overlooked. It may seem complicated or unnecessary at first, but don’t worry, this guide will explain the basics in simple, clear language to help you decide if it’s right for you.
What is Life Insurance?
Life insurance is a simple contract between you and an insurance company. You pay a regular premium, and if you pass away during the policy, the insurer pays a lump sum to your chosen beneficiaries, usually your partner or immediate family. This can help cover expenses like your mortgage, bills, or everyday living costs if you're no longer around to do so.
Why Should First-time Home Buyers Consider Life Insurance?
If you are taking on a mortgage towards buying your first home, life insurance is something worth thinking about. It’s a simple way to protect your family financially if you're no longer here. We all insure things like our cars, phones, and even our pets, so why not insure ourselves too?
If something happens to you, life insurance can:
Pay off your mortgage, so your partner / family can stay in their home, mortgage free!
Clear any other debts or cover ongoing expenses
Provide financial support for your loved ones
Choosing the Right Life Insurance for Your Needs
For first-time buyers, the two most common types are:
Term Life Insurance: Protects you for a specific period, for example 25 years if you this is the period you have decided to repay your mortgage over. If you pass away during that time, your beneficiaries receive the payout. It’s straightforward and often more affordable than you think.
Whole of Life Insurance: Protects you for your entire life, as long as premiums are paid. It’s more complex and will be more expensive, so is generally not suitable for the majority of first-time buyers.
How Does Life Insurance Work?
Understanding how life insurance works can help you choose the right policy to protect your loved ones. Here’s a simple overview of the key elements with life insurance:
Choose a policy length (the 'Term'): For mortgage protection, you should consider a policy term that matches your mortgage repayment period, e.g. 25 years.
Determine the payout amount ('Sum Assured'): Usually equivalent to the size of your mortgage. If you are looking for additional family protection the sum assured would usually be a multiple of your income.
Choose the Right Cover Type: A Level plan offers a fixed payout, ideal for family protection or to cover an Interest Only Mortgage. A Decreasing plan is more affordable and a suits repayment mortgage, as the payout drops over time in line with your mortgage.
Paying the Premiums: This can be monthly or annually.
Level vs Decreasing Life Insurance: What's the Difference?
When choosing life insurance, it's helpful to know the difference between level and decreasing cover:
Level life insurance pays out a fixed amount that stays the same for the whole policy term. It’s useful if you want your loved ones to have a set amount in the event of your death.
Decreasing life insurance pays out a sum that reduces over time, usually in line with your 'repayment' mortgage balance. As your mortgage decreases, so does the payout. This makes it a more affordable way to protect your mortgage.
Choosing the right type depends on what you value most.
How Much Life Insurance Do You Need?
To work out the right amount of life insurance, a good starting point is to consider several key factors:
The remaining balance on your mortgage
Any outstanding debts or financial commitments
Future expenses, such as your children’s education or other long-term costs
Your loved ones’ daily living costs, including bills and everyday expenses
If you already have some cover in place, maybe through work or other policies, this will be considered when determining the best solution for your needs. The goal is to ensure your family is fully protected without paying for unnecessary cover.
Is Life Insurance Worth It?
Many first-time buyers ask whether life insurance is necessary. The truth is it depends on your personal circumstances. If you have dependents, a mortgage, or outstanding debts, life insurance can provide valuable peace of mind. It ensures that your loved ones won’t face financial hardship if the unexpected happens. Even if you’re single or have no dependents, it might still be worth considering, especially if you want to cover funeral costs or clear your debts.
Is Life Insurance Necessary When Taking on A Mortgage?
While life insurance is not a mandatory requirement when you take on a mortgage, it is widely considered best practice for most homeowners. Having a policy in place provides extra peace of mind, knowing that your loved ones will be protected financially if something happens to you. It’s a simple step that can make a big difference, helping your partner / family stay in their home and manage financially during difficult times.
Why You Should Consider Your Own Life Insurance
Even if you have some cover through work, known as ‘Death in Service Benefit’, relying solely on that can be risky. This cover is usually part of your employer’s benefits package and is often a multiple of your salary. But the payout can depend on certain conditions and the discretion of the scheme’s trustees. Plus, most people change jobs over time, so that cover might not be there when you need it most.
Having a basic life insurance policy that’s separate and runs alongside your mortgage can eliminate this risk, ensuring your loved ones are protected regardless of any employment changes.
How to Compare Life Insurance Policies
Comparing your options carefully is essential to find a policy that offers good value and the right protection. Consider:
Premium Costs: How much you will pay regularly and if it fits your budget.
Coverage Amount (Sum Assured): How much the policy will pay out and whether it’s enough to cover your mortgage and other costs.
Policy Term: The length of cover, usually in line with your mortgage term.
Exclusions and Conditions: What’s not covered and the specific circumstances that might limit or exclude claims.
Provider Reputation: Check customer reviews and their financial stability to ensure they can pay when needed.
Additional Features: Some insurance providers include optional extras or benefits that could enhance your policy.
Defaqto, the financial product rating experts, offer independent ratings across all insurance products, so this is certainly a good place to start. Alternatively, if you are working with a Mortgage & Protection Adviser they will simplify this process, helping you find the best value and suitable protection for your needs. Taking time to compare thoroughly ensures you choose an affordable policy that offers complete peace of mind.
When Life Insurance Pays Out, and When It Doesn’t!
It's important to remember that basic life insurance policies do not pay out if you are unwell or suffer an accident. If you want a lump sum in case you become seriously ill or are involved in a serious accident, you should consider Critical Illness Cover.
Also, when applying for life insurance, honesty is crucial. If you withhold information about existing medical conditions at the point of application, it could result in your claim being rejected later.
For a full comparison and more details on how critical illness cover differs from life insurance, you might want to check out our article Critical Illness Cover vs. Life Insurance: Choosing the Right Protection.
Can I Get Life Insurance if I Am Older or Unwell?
Your age and health can affect your ability to get life insurance and the premiums you’ll pay. The older you are, or if you have pre-existing health conditions, the higher your premiums will be. However, many insurers offer policies specifically designed for older applicants or those with health issues. These might be more expensive or have different terms, but it’s still worth exploring your options.
When Should I Get Life Insurance?
Ideally, you should consider getting life insurance as soon as you have financial commitments that depend on your income, like buying a home with a mortgage. The younger and healthier you are, the cheaper your premiums tend to be. Waiting until later might mean higher costs or difficulty qualifying. Starting early gives you more options and ensures you’re protected when you need it most.
Why Consider Life Insurance When Buying Your First Home Alone
If you're buying your first home on your own, it’s still worth thinking about life insurance. Having cover in place means that if something happens to you, your property can be passed to your family 'mortgage free'. This can ease the financial pressure during a difficult time, helping your loved ones avoid having to worry about paying off the mortgage or managing other expenses. It’s a simple step that offers peace of mind for you and your family.
Placing Your Life Insurance in Trust
If you're buying a home on your own and choosing to get life insurance, it’s a good idea to place the policy in trust. Doing so ensures that if the unthinkable happens, the proceeds go straight to your chosen beneficiary, usually a close family member, and remain out of your estate. This can make the process quicker and simpler for your family during a difficult time, ensuring they receive the support they need without unnecessary delays.
It's also important to write a Will too - for a more in depth overview check out Trusts & the Importance of Writing a Will.
Final Thoughts
Understanding the basics of life insurance helps you make smarter decisions and gives you peace of mind as you settle into your new home. For first-time buyers, taking the time to assess your needs, compare policies, and think about your future plans will ensure you find the right protection. If you're unsure where to begin, seeking advice from a Mortgage & Protection Broker can make the process easier and help you choose the best cover for your circumstances.
Ready to chat with an adviser?
Your home may be repossessed if you do not keep up repayments on your mortgage.
As with all insurance policies, conditions and exclusions will apply.
Published by Adrian Collins, Founder of Beechwood Mortgages Ref: 219335 with review and approval from Stonebridge Mortgage Solutions Limited who is authorised and regulated by the Financial Conduct Authority Ref: 454811.
That’s why I value resources like CoverageByInsurance, coveragebyinsurance.com which provide clear and reliable guidance on life, health, auto, home, and business insurance. Having the right information helps you make smart decisions and ensures you’re fully protected from day one of owning your home.