What do first time buyers need to know about life insurance?
Life insurance for first-time buyers can provide a lump sum to your loved ones to help pay off your remaining mortgage if you die, which may help with outstanding mortgage repayments and provide additional financial support.
Buying your first home is a major life goal and a long-term financial commitment. Most first-time home buyers in the UK will need to take out a mortgage to cover the cost, which can be in place for 30 years or more.
Repaying your mortgage is crucial to keeping your home and a top financial priority for most first-time buyers. But have you considered how you would keep up the repayments if you or the person you share the mortgage with died?
Why is life insurance important for a first-time buyer?
Your mortgage as a first-time buyer is likely to be the biggest debt you have. Whilst you’re working and earning, the repayments can be managed. But if you pass away before paying back your mortgage, the debt still needs to be paid off. Having a life insurance policy in place helps you do this. It has three main benefits.
1. Financial security
Life insurance can pay out a lump sum if you die or you’re diagnosed with a terminal illness. Your loved ones can use this money to pay off the remaining mortgage debt.
2. Peace of mind
Knowing that the mortgage is paid off can be a relief for your family. They can take some comfort from being able to remain in the family home.
3. Mortgage security
Some mortgage lenders may make it a condition that you need to have life insurance in place before they offer you a mortgage. The lender is then reassured you can pay off the mortgage if the worst happens.
What types of life insurance are available for first-time buyers?
There are several different types of life insurance policy that you can choose from as a first-time buyer. The best option for you will depend on individual circumstances such as what type of mortgage you have and whether you want to leave other funds for your partner or family.
Term life insurance
Term life insurance covers you for a set period of time. This is known as the ‘term’. You can choose how long you want your cover to last. Anything from five to 50 years.
So, if you’re paying back a mortgage for say, 30 years, you can take out a term life insurance policy for 30 years. If you pass away or are diagnosed with a terminal illness during that time, the policy can pay out a lump sum. This payout can be used for anything but is often used to pay off any outstanding mortgage. The policy ends when the term expires. If you die after that time, your family won't receive any payout.
There are three types of term life insurance.
Decreasing term insurance
With decreasing term life insurance, the payout reduces over time. These types of policy are often taken out to cover the cost of paying back a repayment mortgage.
When you take out a repayment mortgage you pay back both the interest on the loan and some of the capital. This means your debt gets smaller over time. With decreasing term insurance, your payout gets smaller over time as well. So, if you die five years into a 30-year plan, your loved ones will receive a larger payout than if you die 20 years into a 30-year plan. But as your mortgage should have reduced as well, your family will pay back less to the lender.
Your premiums will stay the same throughout the term of the policy, but as cover reduces over time it can be a cheaper option than level or increasing term insurance.
Level term insurance
Level term life insurance pays out the same fixed sum throughout the term of the policy. This makes it a good option for interest-only mortgages. With this type of mortgage, you only pay back the interest on the loan, not any of the capital. This means the original loan remains unpaid until the end of your mortgage term.
If you were to die during this time, your family would need to carry on paying the interest on the loan. And find a way to repay the capital at the end of the mortgage. With a level term insurance policy, they could pay back the original loan in full.
Increasing term insurance
This type of life insurance provides a payout that increases over time. It’s usually set up to keep pace with inflation or rising financial obligations. As the payout increases over time, so will your premiums. It could be an option if you have an interest only mortgage and other ongoing financial commitments, like school fees.
When you apply for term life insurance you’ll need to have an idea about:
- who you want to cover
- how long you want the policy to last
- how much cover you’ll need
You can use these details to get a quote which shows you how much your insurance will cost.
Whole of life insurance
Whole of life insurance is a type of life insurance that’s designed to pay out when you die, as long as you keep paying your premiums. So, it offers cover for the whole of your life.
Unlike term insurance it doesn’t have an end date. Once the plan is set up and your premiums are up to date, it will pay out when you die.
As a first-time buyer, you’re less likely to need this type of insurance to cover your mortgage, but people often take out this insurance so they can leave a legacy for their family, cover funeral costs or pay an inheritance tax bill.
What is the difference between term and whole life insurance for first-time buyers?
Here's how the two types of policy compare.
| Term life insurance | Whole of life insurance | |
|---|---|---|
| What it does | Pays a tax-free lump sum if you die or are diagnosed with a terminal illness while the plan is in place. | Pays a tax-free lump sum when you die. |
| Purpose | To provide financial security to loved ones. Can be used to help pay off a mortgage. | To provide financial security to loved ones. Can be used to pay an inheritance tax bill as well. |
| Types of cover | Decreasing Level Increasing |
Level Increasing |
| Length of plan | You can choose how many years you want the plan in place for. | Lasts for the whole of your life. |
| Cost (premiums depend on individual circumstances and underwriting) |
Cover from as little as £5.00 per month with Vitality. | Monthly premiums may be higher as the payout is guaranteed. |
Tax treatment depends on individual circumstances and may change in future.
How much life insurance does a first-time buyer need?
If you’re buying life insurance just to cover your mortgage, then you may want to consider taking out enough to cover paying back the debt from day one. So, if your first-time mortgage is £200,000, then so should be your life insurance.
As you pay off your repayment mortgage, you’ll need less life insurance. This is where decreasing life insurance is useful, as it provides a smaller payout as your mortgage gets smaller. It’s important to check however, that the decreasing cover still meets your needs each year. And if you increase your mortgage in the future, you’ll need to adjust your cover.
If you have an interest-only mortgage, your insurance cover can be designed to stay the same throughout the term of your mortgage. So, you know you’ll always have enough to cover the original loan if you die.
But as a first-time buyer it’s also good to review the rest of your finances to make sure you’re covered not just for your mortgage but also your lifestyle. Other costs to consider include:
- Personal loans, car loans and credit cards.
- Domestic bills, food, entertainment and childcare.
- Future expenses. Like private schooling or further education.
- Funeral costs.
Offset these costs against existing savings, your partner’s income or death in service payments and this will give you an approximate amount for your life cover.
Do first-time buyers need joint life insurance or separate policies?
First-time buyers buying together can have either a joint life policy or two single life policies. It depends how you want the mortgage to be covered.
Joint life insurance covers two people on the same policy but only pays out once. If you or the other person named on the policy die while the policy is in place, the other will automatically get the payout. The policy then ends, so the surviving partner is no longer covered by the insurance.
There’s no need to be married or in a civil partnership to get joint life insurance. For example, friends who share a mortgage can have joint life insurance.
Two single life policies can offer a bit more protection. Both you and your partner or friend if you share a mortgage, can take out separate single life policies. Then, if one of you dies, the remaining partner can pay off the mortgage with the payout, but they still have their own cover in place.
What other types of insurance should a first-time buyer consider alongside life insurance?
Life insurance in the UK is designed to pay out if you die when the plan is in place. Other types of insurance will pay out while you’re still alive but unable to work. They’re designed to replace income or provide a lump sum to support you during illness.
What is critical illness cover, and does a first-time buyer need it?
Critical illness insurance is designed to pay out a lump sum to you if you’re diagnosed with a serious illness that's covered under the policy. Illnesses covered include:
- cancer
- heart attack
- stroke
- permanent disability
Critical illness insurance is often bought at the same time as life insurance. You can use the money to help pay the mortgage and other bills as you recover from or adapt to your new condition.
With a mortgage being such a long-term financial commitment, it’s possible that you may need to take time off work to recover from an illness during that period.
How does income protection support first-time buyers with a mortgage?
Income protection is an insurance that can pay a monthly amount to replace some of your income if you become ill or get injured and can no longer work. The regular payouts can help meet your living expenses, such as mortgage payments and utility bills.
Is life insurance enough protection on its own?
Life insurance is typically a one-off lump sum payment made when you die. It doesn’t cover you for illnesses or accidents where you’re likely to recover. So, there’s a place for other types of insurance as well.
Unfortunately, debts don't disappear when you die, so life insurance is useful for repaying debts, such as a mortgage or loans.
If you’re self-employed, you have dependants or you're the main wage earner, you may want to consider taking out income protection insurance. Especially if your employer only pays Statutory Sick Pay.
As critical illness cover pays out a lump sum rather than an income, it’s useful for those who don't have savings to rely on. Or if you want to use the money to explore private treatment.
Read our guide about income protection insurance and critical illness cover.
What affects life insurance costs for first-time buyers?
The cost of your life insurance will vary based on several factors.
- Age – the older you are the more likely you are to make a claim.
- Health – if you have a current medical condition this can influence the price of cover.
- Medical history – your family history and past medical history will also be assessed.
- Lifestyle – such as how much alcohol you drink and what your hobbies are.
- Smoker status – a major factor in assessing your future health.
- Occupation – you may need to pay more if you have a high risk occupation.
- Cover level – the greater your mortgage, the more expensive your cover.
- Policy type – decreasing term insurance can be cheaper than level term insurance.
- Policy term – a long-term policy means there’s a greater chance of making a claim.
- Extra cover – like critical illness insurance or income protection will increase the price.
Key takeaways
- Your mortgage as a first-time buyer is likely to be the biggest debt you have. But if you pass away before paying back your mortgage, the debt still needs to be paid off.
- Life insurance pays out a lump sum if you die or you’re diagnosed with a terminal illness. Your loved ones can use this money to pay off the remaining mortgage debt.
- Term life insurance covers you for a set period of time. Anything from five to 50 years. So, if you’re paying back a mortgage for say, 30 years, you can take out a term life insurance policy to help pay off your mortgage if you die during that time.
- Term life insurance policies are available to cover both repayment and interest-only mortgages.
Vitality life insurance
Want to know more about life insurance or thinking about taking out a policy? Here are some of the benefits of taking out life insurance with Vitality:
- A brand you can trust - In 2024, we paid out 98.9% of all Life Cover claims.*
- Get a lower monthly premium upfront when you add Optimiser to your plan. Keep your premiums low when you stay active.
- Access to Vitality partner discounts and rewards.
- Get free no-obligation advice. Our advisers offer expert advice to help you make the right decisions.
You're not alone in choosing Vitality. Over 2 million lives in the UK are now covered by our insurance, and we’re here to support you too.
Ready to take the next step? Getting a quote is simple and takes just a few minutes.
*VitalityLife Claims and Shared Value Report 2025
Life insurance for first-time buyers FAQs
Get a quote in minutes
Pays out to your loved ones if you die or become terminally ill.
