LIFE INSURANCE COVERS the worst-case scenario and has become more important as financial foundations have shifted, government resources have been strained and costs have climbed.
Prepare for the unexpected by ensuring that your family is protected from any sudden and long-term financial strain. It goes without saying that we need to enjoy our money today while also ensuring it will be there for us and our family tomorrow.
HAVING FINANCIAL PROTECTION IN PLACE MAKES SENSE
You’re not legally obliged to get life insurance for a mortgage, but it makes sense to have some form of protection in place. Your mortgage is likely to be one of the biggest financial commitments you’ll ever make, so it makes sense to ensure that it’s paid off in the event of your death.
Life insurance is certainly important to consider when buying a house as a couple. If one spouse dies, the other may not be able to make the mortgage repayments on their own.
If both spouses die, the mortgage will still need to be paid off so that the family can keep the home. Our article What happens to a mortgage when someone dies? explain the process in a bit more detail.
It’s also a good idea to think about adding critical illness insurance to your mortgage life cover. This would pay out a lump sum if you were to be diagnosed with a severe illness or condition.
BASIC LIFE INSURANCE
With a term life insurance policy, you choose the amount you want to be insured for and the period for which you want cover. This is the most basic type of life insurance and does not accrue a cash-in value.
There are two suitable plans that can cover a mortgage:
DECREASING TERM LIFE INSURANCE
With this type of policy, the amount you’re insured for decreases over time, usually in line with your mortgage. So, if you have a £250,000 mortgage and take out a decreasing term life insurance policy for 20 years, the cover would start at £250,000 but would reduce each year to zero at the end of the term.
Premiums are usually cheaper than for level-term cover as the amount insured reduces as time goes on.
LEVEL TERM LIFE INSURANCE
With level term life insurance, you choose the amount you want to be insured for and the period for which you want cover, but the amount you’re insured for stays the same throughout the term. So, if you have a £250,000 mortgage and take out a level mortgage life insurance policy for 20 years, the cover would stay at £250,000 throughout the term.
FAMILY INCOME BENEFIT POLICIES
This is a useful extra plan to consider in addition to one of the above.
If you’re the main breadwinner in your family, a family income benefit policy could be a good option. With this type of policy, you choose the amount of monthly income your family would need if you died and the policy pays out each month for as long as you’ve chosen – until your youngest child reaches 18, for example.
Your mortgage payments could be covered, as well as other outgoings such as childcare and school fees.
This type of family protection policy is usually cheaper than level term life insurance as it only pays out for a set number of years.
