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Life insurance for a mortgage: Do you need it?

Life insurance may not be compulsory when buying a house in Australia, but there are a number of situations where it could be a worthwhile expense.

What you need to know

  • You do not have to buy life insurance when taking out a mortgage, but it might be worth it.
  • The right cover could pay off your mortgage if you die. It can also mean your loved ones are able to pay for their ongoing bills.
  • Only home insurance is compulsory when you buy property.

Do I need life insurance to buy a house?

No, you aren't legally obligated to take out life insurance when you buy a home. It's not like home insurance which you almost always need to have in place before you move in.

Taking out life insurance when you buy a home can offer financial security and be worthwhile, depending on your circumstances.

Who needs life insurance?

The main reason for buying life insurance is to make sure that your mortgage would be paid off (or at least partially paid off) if you died.

This is likely to be crucial for some people, but less so for others. For example, it could be really helpful if you've just bought your family home with your partner and they wouldn't be able to continue paying the mortgage without your income.

On the other hand, it may be less helpful if you're single – in which case the house would simply be sold. Or, if your partner is comfortable downsizing.

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Do you have life insurance inside your super?
Every Australian has access to life insurance inside their super. The payout is typically lower than buying standalone life insurance. There are other limitations to holding life insurance in your super, but if you're just looking for some financial security, this is an option to consider.

Can life insurance cover my mortgage repayments if I can't work?

No, life insurance only pays out if you die or become terminally ill.

However, income protection insurance can help in this type of situation. If you get sick or injured and need to take time off work, it can pay you up to 75% of your monthly income. In some cases, it can also cover involuntary redundancy.

Another important type of life cover to consider is Total & Permanent Disability (TPD) insurance. TPD instance – which, in the case of NobleOak, has a benefit limit of up to $5 million – covers you if you get severely injured or sick. For example, if you become blind or paralysed after a car accident and become permanently disabled.

  • You may have also heard the term mortgage protection insurance come up when buying a house. Like income protection, it kicks in if you can't work. However, unlike income protection, it only covers your mortgage repayments so it's often not great value for money.

Budgeting for life insurance with a mortgage

In these budget-conscious times especially, it can be hard to weigh up how much cover you need.

Expert Brenton Tong, managing director of Financial Spectrum, told Finder: "Term life cover is usually pretty cost-effective, so you can expect about $1 million of life insurance to cost you around $150–$300 per year if you're fit, in your 30s and a non-smoker.

"As you get older you can expect costs to start to increase. By the time you're in your 40s, this will increase to about $500 per year. Once you hit 50, prices will generally climb to levels that won't be sustainable."

Tong added: "It's always important to make sure that you're covered for sufficiently."

For life insurance, as a general guide you want at least the total of your home mortgage and, if you have children, 5–10 times your salary. The age of your children will matter because if they're just about to move out of home, you don't have as much time you need to look after them if a parent dies suddenly.

Brenton Tong

Brenton Tong
Financial planner

Finder's life insurance calculator can help you to figure out what you'd need to pay off your debts such as your mortgage and to meet ongoing expenses such as food and filling up the tank.

Compare 10 direct life insurance providers

The quotes below show the average monthly cost of cover as part of our extensive research for the 2023 Finder Awards. Quotes were based on a (non-smoking) female office worker earning $80,000 per year, based in NSW, looking for $500,000 in cover.

Keep in mind, these quotes are indicative – the actual cost of life insurance varies a lot depending on personal factors including your age, health and smoking status.

Brand30 years old40 years oldApply
Nobleoak$15$22Get quote
RAC$19$28Get quote
TAL logo$19$24Get quote
Allianz logo$29$42More info
AAMI life insurance$29$57Get quote
Insuranceline logo$29$57More info
Suncorp life insurance logo$29$57Get quote
ahm logo$35$49Get quote
Bendigo bank$36$56More info
Medibank logo$37$52Get quote

Why compare policies online?

If life insurance, TPD cover or income protection seem like a good idea to you, our best life insurance and income protection pages have made it easy to find a policy online. Also, it's free to use and we'll never charge you for clicking through to one of our partners.

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