Do I Need Life Insurance for a Mortgage? | Covermate Life

Buying a home is one of the biggest financial commitments most Australians will ever make. With property prices rising and mortgages often stretching over decades, it’s natural to wonder: do you need life insurance to cover your mortgage?

The short answer is it’s not compulsory, but for many people, life insurance can provide valuable peace of mind that their loved ones won’t be burdened with mortgage repayments if the unexpected happens.

Is Life Insurance Required for a Mortgage?

In Australia, banks and lenders do not require you to take out life insurance when applying for a mortgage. Your lender will assess your borrowing power based on income, assets, credit history, and expenses — not whether you hold a life insurance policy.

That said, while it’s not a condition of approval, some lenders may suggest or promote insurance products alongside the loan. This is optional, and you’re free to choose your own provider if you decide life insurance is right for you.

Why Consider Life Insurance When You Have a Mortgage?

Even though it’s not mandatory, life insurance can help protect your family from financial stress in the event of your death or terminal illness. Some reasons people link life insurance with their mortgage include:

• Protecting your family home – a lump-sum life insurance payout can help pay off the mortgage, ensuring your loved ones don’t face losing the house.

• Covering large debts – many households now carry mortgages well above $500,000; insurance can reduce or clear this liability.

• Providing financial stability – beyond the mortgage, a payout can also help with living costs, school fees, or other commitments.

Types of Cover to Think About

When it comes to protecting your mortgage, people often consider:

• Life Insurance (Death Cover): Pays a lump sum to your beneficiaries if you pass away or are diagnosed with a terminal illness.

• TPD Insurance (Total & Permanent Disability): Can provide funds if you become unable to work again due to disability.

• Income Protection: Helps replace a portion of your income if illness or injury prevents you from working.

Depending on your circumstances, a combination of these may provide the most security.

How Much Life Insurance Do I Need for My Mortgage?

There’s no one-size-fits-all answer. Some people choose to take out enough cover to fully pay off their mortgage, while others may aim for partial coverage that reduces repayments to a manageable level for their partner or family.

A simple way to start is:

• Look at your outstanding loan balance.

• Consider future expenses like children’s education or household costs.

• Balance this against any existing assets, savings, or superannuation that could help.

Final Thoughts

You don’t legally need life insurance to take out a mortgage in Australia — but many homeowners choose it as a way to protect their family’s future and safeguard their most important asset: their home.

At Covermate Life, we’re here to provide general advice and help you compare a range of options so you can decide what’s right for your circumstances.

Disclaimer

This information is general in nature and does not take into account your personal objectives, financial situation, or needs. You should consider whether it’s appropriate for you and seek professional advice before making any decisions.