Should you get life insurance before or after buying a house?

Buying a house is one of life’s biggest financial commitments, and for many, it brings up an important question: should you secure life insurance before the purchase, or wait until after?

Life insurance is designed to offer financial security for your loved ones, particularly when you have significant financial obligations like a mortgage. Whether you choose to get life insurance before buying a house or wait until the deal is done can have an impact on both your finances and peace of mind.

In this article, we’ll explore the pros and cons of getting life insurance before or after buying a house, and guide you through key factors to help make the best decision.

Why life insurance matters when buying a house

A mortgage represents a long-term commitment. If something happens to you, any outstanding debt could become a significant financial burden on your family. Life insurance offers a solution by providing a payout that can be used to settle your mortgage or other essential expenses.

In most cases, life insurance is especially beneficial for homeowners with dependents who rely on their income. A life insurance policy can protect your family from losing the home, easing the financial strain if your income is no longer there to cover mortgage payments.

Life insurance types for homeowners

For homeowners, the most common life insurance types include mortgage life insurance coverage and term life insurance policies. Mortgage life insurance is designed specifically to cover the balance of your mortgage in case of death, while term life insurance provides broader coverage for a specified period, allowing your family flexibility in how they use the payout.

Understanding these options helps clarify the choice of timing for your life insurance policy, as it impacts how you plan your finances around your mortgage commitment.

Pros and cons of getting life insurance before buying a house

Deciding to secure life insurance before buying a house has its advantages, as well as some considerations to keep in mind. Let’s look at both sides.

Pros of buying life insurance before the house

1. Potentially lower premiums: Life insurance premiums are largely based on age and health. By purchasing life insurance earlier, you might lock in lower premiums, saving you money over time.
2. Quick coverage for dependents: Securing life insurance before buying the house means that, if something happens to you during the home-buying process, your family won’t face unexpected financial stress.
3. Stronger mortgage application: In some cases, having life insurance in place can support your mortgage application by showing lenders that your family has a financial safety net.
4. Freedom to choose broader coverage: When you arrange life insurance separately from your mortgage, you’re free to choose any policy that suits your family’s needs, rather than solely focusing on mortgage-specific cover.

Cons of buying life insurance before the house

1. Uncertain coverage amount: Without knowing the exact mortgage amount, it can be difficult to determine the exact level of life insurance coverage you need.
2. Policy adjustment needs: After buying a home, you may find you need additional coverage, requiring adjustments to an existing policy. While this can be done, it may lead to a slight increase in premiums.
3. Potential additional costs: If you end up needing more coverage than anticipated, you might need to add a second policy or increase your existing one, which could lead to additional administrative costs.

Pros and cons of getting life insurance after buying a house

For some, it may make sense to secure life insurance after buying a house. Here are the pros and cons of waiting until after the purchase.

Pros of buying life insurance after the house

1. Precise coverage amount: After finalising your mortgage, you know exactly how much coverage you need, allowing you to tailor the mortgage protection insurance policy specifically to cover your home loan.
2. Easier policy choices: Once the mortgage is in place, you can explore options like mortgage protection insurance. This type of insurance is specifically designed to cover mortgage payments, and you won’t need to make changes after purchase.
3. Less paperwork: Handling one major purchase at a time can help you avoid additional paperwork during the home-buying process. This may be beneficial if you’re already working with multiple providers, such as estate agents and lenders.

Cons of buying life insurance after the house

1. Possible higher premiums: The longer you wait to buy life insurance, the greater the likelihood that your life insurance premiums will increase, especially as you age.
2. Risk of uncovered period: If you pass away before securing a policy, your family could face financial strain while dealing with the mortgage payments.
3. Limited flexibility: If you choose mortgage protection insurance after the purchase, your options for other types of life cover may be more limited. This could mean additional costs if you later decide you want broader coverage.

Key factors to consider when deciding on life insurance timing

While the timing of your life insurance purchase is a personal decision, here are a few factors that can help you determine whether you should buy life insurance before buying a house or wait until after:

Your health and age

Life insurance premiums are largely influenced by your age and health, with younger applicants typically able to secure lower premiums. If you’re in your 20s or 30s, locking in life insurance before buying a house can help you secure a lower rate.

Additionally, if you’re concerned about serious health risks, consider adding critical illness insurance to your life insurance policy. This add-on provides coverage if you’re diagnosed with a major illness, offering extra financial protection during a difficult time. Securing both life and critical illness cover early can provide long-term savings, as premiums often rise with age and changing health conditions.

If you’re approaching an age bracket like over-50s life insurance, it’s worth comparing costs before and after your home purchase to determine the best time to apply.

Family and dependents

For those with dependents, securing a life insurance policy earlier provides immediate coverage for your family’s financial security. In the event of an unexpected passing, life insurance ensures your loved ones won’t face the loss of their home.

If you’re newly married or planning to start a family, securing life insurance without dependents early on can still offer valuable protection for your spouse and future children.

Financial stability

If you’re in the process of saving for a home deposit or have a limited budget, balancing the costs of life insurance and a mortgage may be challenging. It may make sense to wait until after the home purchase, when you have a clearer picture of your budget, to assess whether mortgage protection insurance or a term life policy best suits your financial circumstances.

Your long-term goals

If you’re looking for broad coverage that protects your family beyond just the mortgage, securing a policy before buying the house may be the right choice. If your primary concern is covering mortgage payments, then purchasing a policy tailored to the exact mortgage amount after you’ve finalised the purchase might be more suitable.

Joint life insurance policies for couples buying a house

If you’re buying a home with a partner, a joint life insurance policy may be an effective solution. Joint life insurance is designed to cover two people under a single policy, often at a lower combined cost than two individual policies.

This policy typically provides a payout upon the first death, which can be used to cover the mortgage. However, be mindful that after the payout, the policy typically ends, leaving the surviving partner uninsured.

Benefits of a joint policy

1. Cost-effectiveness: Joint policies are often cheaper than two separate policies, making them a budget-friendly option for couples.
2. Mortgage-specific protection: With a joint policy, the mortgage debt is fully covered for the surviving partner, reducing their financial burden.
3. Convenience: A single policy can simplify management and payments, which may be easier for couples managing joint finances.

Drawbacks of a joint policy

1. One-time payout: Since joint policies only pay out once, the surviving partner will need to secure new coverage if they want ongoing protection.
2. Limited flexibility: If the couple separates, dividing a joint policy can be difficult, and each partner may need to apply for separate coverage afterward.

Conclusion: Should you get life insurance before or after buying a house?

The decision to secure life insurance before buying a house or wait until after depends on your personal situation.

Buying life insurance before purchasing your home can help lock in lower premiums and give your family immediate protection, especially if you have dependents.

On the other hand, waiting until after the purchase allows you to tailor your coverage specifically to your mortgage, making it easier to calculate the exact amount needed.

For couples, a joint life policy may provide convenient and affordable coverage, though it comes with some limitations.

No matter your choice, remember that life insurance offers essential protection for homeowners, ensuring that your family is financially secure and that your home remains safe if anything happens to you.