TWO-THIRDS of people buying houses are being mis-sold life insurance, costing them hundreds of pounds each year.
Homebuyers are buying policies under false pretences, believing they need it in order to get a mortgage, new research has shown.
The study, carried out by comparison site ActiveQuote.com found that 60 per cent of people had been told they need to have life insurance in place before they could buy a house.
30 per cent were told that they would only be able to get a loan if the cover was in place.
Even more worrying, a further 30 per cent were told that having the cover was a legal requirement.
Another 51 per cent of people said they were told they needed to have income protection cover in place to complete a sale.
But in reality, there are no rules that say you need income protection or life insurance in order to buy a new home.
These insurances can be useful for homeowners, as they mean that the mortgage can be covered if someone dies or loses a job.
However, it is not a legal requirement to have either type of cover.
The only insurance you must legally have is buildings cover, which needs to be in place from the day that contracts are exchanged.
This insurance will pay for any damage to the structure of your home, including the walls and roof.
It can even be used to rebuild a home completely if required.
Who needs life insurance?
LIFE insurance isn't for everyone, so make sure you really need it before you buy it
Life insurance is all about leaving money behind for other people, so if you don’t want to leave any money behind then life insurance isn’t for you.
For instance single people or people without children probably won’t need life insurance unless they want to pay out to a family member.
If you do have a partner or children You should probably consider wheter it would be a struggle to pay for basic costs like bills and rent if you weren’t around.
If the answer is yes you should probably consider getting life insurance, if not then it might not be worthwhile.
If you or your partner claim any income based benefits you may want to consider whether getting a life insurance payment could affect the benefits you receive.
Roshani Hewa, head of protection and health at the Association of British Insurers, said: “If you have children or other dependents, it’s important to think about their financial security when you pass away. ”
“Life insurance can protect your loved ones from financial hardship and provide essential security.”
“If you’re considering this type of insurance, it’s important that you get independent financial advice on your needs and options.”
Having this cover is usually a condition of getting a mortgage, and your conveyancer will often ask for proof before a sale can go ahead.
If you do choose to take out income protection insurance or life insurance, it is important to shop around before you buy.
But the ActiveQuote study showed that lots of people are failing to do so.
35 per cent of people said they bought life insurance from either their mortgage provider or their financial adviser.
A further 8 per cent said they did not realise they were allowed to shop around.
Rod Jones, head of partnerships at ActiveQuote.com said: “There is still a lot of misinformation about what is required to get a mortgage, with one in five admitting they don’t understand what life and income protection insurance covers.
“Whilst it’s obviously advisable to protect yourself when you’re taking on a big financial outgoing – it is not a legal or product requirement.”
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