This is a question that is asked quite often. The answer simply differs from case to case. There is advantages and disadvantages to both. If you are comfortable enough in your financial situation that a cash purchase will leave you with enough of a financial cusion to live, then you avoid paying a mortgage and can save some money. Most often i see people put 50% down and get a mortgage for the other half of the purchase price. Only you know your whole financial picture and future goals. If you are paying a 4.75% mortgage or less and can get a larger return on an investment, then it pays to get the mortgage. Check with your cp or advisor. I wish you luck with your purchase
You ask, "I will be downsizing and wonder if I should pay for the new house in full with either life ins/sales proceeds or should I get a mortgage?
Yours is an excellent question and one that most agents will sidestep for fear of liability. But let me at least address your question from my personal experience. If you can buy a living unit right now that you are satisfied with for yourself and do it without a mortgage, you will always have a place to live--regardless of what rules the government makes or changes.
At the moment, if you can spare the cash it will cost you for the new home (money you might have saved for retirement), then spending it on yourself at this time--when the prices of homes are at a new low, seems like a wise move. I can tell you with pride, living without a mortgage can be a good thing, you'll only have insurance and taxes (and maybe a condo fee) to pay as living expenses. The deduction for mortgage interest is at risk right now as the administration seems to want to help themselves to your wallet in every way.
And downstream, if you ever do need the money you have invested in the home you can either take a traditional mortgage the property when you decide--or take a reverse mortgage that will provide you a monthly income you won't have to repay during your lifetime.