Embarking on homeownership or gearing up to buy your first home can often introduce you to the terms “mortgage protection” and “life insurance.” You might find yourself questioning their importance or how they differ from each other.

Here are two key points to remember

Firstly, mortgage protection is a form of life insurance.

Secondly, as its name suggests, mortgage protection is designed to clear your mortgage in the event of your death. This type of coverage is usually a prerequisite for securing a mortgage. The payment in this case goes directly to the mortgage lender. Conversely, for financial security for your family after your demise, a separate life insurance policy would be necessary.

There’s more to it, and we’ll delve deeper into that. Buying a house is a significant commitment and there’s a lot to consider — even before you receive the keys. Whether you’re a first-time homebuyer, relocating, or switching mortgages, our aim is to guide you through understanding both options. We’ll tackle some frequently asked questions to help you decide what’s best for your situation.

What’s the difference between mortgage protection and life insurance?

Mortgage protection and life insurance are both insurance policies but serve different purposes. Mortgage protection is a subset of life insurance that’s specifically aimed at repaying your mortgage to the lender if you pass away.

Life insurance, on the other hand, is a broader concept that typically means a lump sum payment to your family in the event of your death.

What is mortgage protection?

Mortgage protection is life insurance tailored to settle your mortgage in full if you die before the mortgage is fully paid off. This ensures that your family is not burdened with mortgage debt.

You generally can’t secure a mortgage without this protection. It’s a legal requirement set by mortgage lenders and must be arranged before the mortgage is finalized.

Exceptions to needing mortgage protection may include:

  • Being over 50 years old.
  • Purchasing a non-residential property.
  • Ineligibility for mortgage protection due to serious health conditions or high-risk professions.
  • Existing life insurance that fully covers your mortgage.


What is life insurance?

Life insurance is intended to provide a one-time financial benefit to your family upon your death. This sum can help cover daily expenses, debts, or even your mortgage.

How does life insurance work?

Life insurance is a contract with an insurance company where you pay premiums in return for a lump-sum payment to your beneficiaries after your passing. It’s a way to ensure financial security for your loved ones.

The cost of life insurance premiums varies depending on your age, health, and lifestyle. A consultation with a financial advisor can clarify which type of life insurance best fits your needs.

What are the different types of life insurance?

Life insurance comes in various forms like “term life insurance,” which pays out if you die within a set period, and “whole-of-life insurance,” which covers you for your entire lifespan.

There are also “living benefits” options, offering payouts during your lifetime under certain conditions, like diagnosed illnesses or inability to work due to injury or illness.

Do I need life insurance to take out a mortgage?

While mortgage protection (a form of life insurance) is essential for a mortgage, having an additional life insurance policy is not mandatory but could be beneficial, especially if you have dependents.

Does life insurance include mortgage protection?

Some life insurance policies can cover your mortgage, but it depends on the policy’s coverage amount and duration, and whether it matches or exceeds your mortgage term. If taking a joint mortgage, both parties should be included in the policy.

Before deciding, consider your family’s financial needs and if assigning your life insurance to your mortgage is sufficient for their long-term security.

What happens if I pay off a significant portion of my mortgage?

Even after paying off a large part of your mortgage, you still need coverage for the remaining amount. The coverage amount can decrease with a decreasing-term mortgage protection policy or remain constant with a level-term policy.

For guidance on which mortgage protection suits you best, consult with a financial advisor.

Do I have to buy mortgage protection from the bank?

It’s a misconception that you must purchase mortgage protection from your bank. While mortgage lenders require you to have this insurance, you have the freedom to shop around for the best plan.

Remember, the process to obtain mortgage protection can vary, so it’s advisable not to delay this step to avoid any impact on your mortgage drawdown.

Interested in exploring mortgage protection or other life insurance products? Schedule a free consultation with an expert advisor at Roban Financial. Our team is ready to provide comprehensive financial solutions for homeowners and those planning for their future. Now is a great time to review your financial plans and ensure they align with your goals.

Book a free financial review now with Roban Financial to get started on securing your future. Call 053 9233640.