Let’s start with the basics: Life insurance is a type of insurance policy that people take out to provide a sum of money to their loved ones when they pass away. Usually people opt to take life insurance out over a fixed term (you sometimes hear such policies described as ‘term life insurance’), however there are Whole of Life policies with no fixed term – which you can read more about here.
Life insurance is a great way of helping to protect your loved ones from financial burdens that may come their way after you pass away. There are various types of life insurance designed to cover your family if the worst should happen, whether it be paying your funeral costs, helping maintain your family’s standard of living or leaving money for your children’s education.
Life insurance for mortgages works exactly the same, with people commonly taking out term life insurance for the duration of their mortgage. So although it isn’t compulsory, you should consider life insurance for your mortgage. Your mortgage is likely the most expensive thing that you’ll leave behind, so it makes sense to cover your family from it when you pass.
As mentioned before, having life insurance for your mortgage is not mandatory, but it is highly recommended. When you first purchase your house, you will usually owe the mortgage lenders thousands of pounds, which you will pay off in monthly instalments. However, if you pass away before the mortgage is paid off, the lenders will turn to your partner if you are in a joint mortgage. Mortgage life insurance prevents your partner from having a huge financial burden on their shoulders by paying off your mortgage debt. This way, your loved ones will have peace of mind that they will be able to maintain their lifestyle without the risk of losing their home.
If you are a single homeowner without any dependents, it’s not necessary to have life insurance for your mortgage. Your mortgage lenders will likely repossess the property once you pass away and auction the property to recoup the money owed. Although life insurance may not be applicable, products such as income protection or critical illness cover could be highly valuable to protect your income and mortgage payments in the event of serious illness or injury.
Single or joint: A single policy for you will ensure that your life is covered for, however your partner would have no cover in place. On the other hand, a joint policy will cover both you and your partner. Essentially, if you are a couple you have two options, get a single life policy each or one joint policy? We’ll get to this later.
Decreasing or level: Over time, your mortgage will decrease as you pay it off, this means the amount of cover you need is reducing every month. Decreasing term life insurance takes this into account. On the other hand, a level term insurance policy will not decrease over time, which is well suited if you have an interest-only mortgage.
If your mortgage is in joint names, then it is typically slightly cheaper to have a joint policy rather than two single policies. These are usually on a ‘joint life first death’ basis – paying out the policy benefit to the surviving policyholder in the event of one of you passing away. The surviving policyholder would no longer be covered as the policy would then cease upon payout.
Another option would be to take out a single policy each. Whilst this is often very slightly more expensive, you are essentially purchasing double the amount of cover compared to a joint life first death policy and should a claim be made the surviving partner would retain their life cover.
Critical illness cover is another benefit that can be purchased alongside life insurance policies. In the case of mortgage cover with critical illness included, if you fall seriously ill with one of the critical illnesses covered by the insurer you will be able to claim on your policy to either maintain your mortgage payments or pay off your mortgage entirely. You can read more about critical illness here.
There are multiple avenues you can take to find the right deal for you and we’re here to help. Give us a call on 01392 436 193 or fill in our contact form here and one of our advisers will be sure to give you the help you need!
It is not necessary to go with your mortgage provider for your life insurance policy, and in many cases, this can turn out to be more expensive. Discount Brokers like ourselves at Cavendish Online will often be the cheapest route to buy life insurance for your mortgage.
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