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Mortgage Insurance: The Essentials
Have you considered what would happen with your home and mortgage should you or the main breadwinner in your family became critically ill or even die? Although it is not a nice subject to talk about, it is vital that you give mortgage insurance, such as life insurance some serious thought and then take action to ensure that you have the right mortgage protection insurance in place, should the worst happen. Mortgage insurance gives you peace of mind, knowing that your mortgage and home will be protected for your family in your absence.
Life insurance could be the most important financial product you ever partake in. If the worst should happen to you, having life insurance in place means that your dependents are financially secure. Getting life insurance sorted out is still, however, something many of us avoid getting around to doing. In particular, if you have a mortgage, it really is one of the best decisions you can make to give you and your family peace of mind.
Life insurance (sometimes known as life assurance or term insurance) is a type of insurance that provides a sum of money should you die. Standard life insurance policies will have a defined term or duration of cover and also a prespecified sum assured.
You might consider taking life insurance in the UK for the following reasons:
You've bought a home with a mortgage - life insurance will help pay off your mortgage after your death meaning the lender will not need to take possession of the home to clear the debt.
You have children - life insurance could provide an income for them until they are financially independent.
You want to leave a legacy - life insurance could provide your relatives with an inheritance when you die, this can be left within a trust to further protect it from taxation.
You want to provide for funeral costs - life insurance could provide your family with a lump sum to assist with funeral costs.
Life insurance is arranged in two main ways - as a level term assurance policy or as a decreasing term assurance policy.
With a level term insurance policy, the amount of cover stays the same throughout the length of the policy. The cover amount and term are both set at the start of the policy. This type of life insurance is most suited either to interest only mortgages where the amount owed stays the same over time or for when a need for a specific amount of coverage has been identified.
With a decreasing term assurance policy, a cash lump sum is paid out in the event of death, but the amount paid out decreases over time. This type of life insurance is usually taken out to provide cover for a repayment mortgage so that the amount paid out is roughly the same as the amount left on the mortgage balance at the time of the claim. As a result, these policies are usually cheaper
In general, the more protection you want from your life insurance policy, the higher your premiums and a cheap life insurance policy isn't necessarily the best option. For a starter, you would probably look to at least cover your mortgage. To work out how much life insurance you need to cover your mortgage, use our super simple mortgage insurance calculator.
If your goal is to provide your family with a regular income after your death then it is best to review your current outgoings and then anticipate possible future outgoings to work out a figure.
In recent years, the price of life insurance has fallen so in some cases, it might be worth looking for a new policy and getting a new life insurance quote just to compare.
When providing a life insurance quote, an insurer will look at your age, your occupation and your health. Non smokers will pay less and you will need to have kicked the habit (including all nicotine products) for the last 12 months in most cases. Also women no longer pay lower premiums than men for life cover since European legislation ruled this differential out in December 2012.
Before you cancel any existing policies it is important to make sure that any new cover has had final terms offered and has been put into force.
A joint policy is slightly cheaper but only pays out once - usually when the first person dies. The second person is then left without cover and it often proves costly for them to get cover at a later date at an older age. Buying 2 single life insurance policies allows more flexibility. You can insure yourselves for different amounts and have different cover times.
Anyone over the age of 50 is accepted for this life insurance, often without the need for a medical check. Cover works in a similar way to regular life insurance. The level of cover is generally low however for over 50 life insurance and it is often taken to cover funeral expenses only. Although there may be no formal medical examination, the providers usually need any applicants to confirm they are in good health and answer yes/no to a list of possible historic medical issues.
Life insurance is generally recommended for anyone with a mortgage. Without it, your family and loved ones left behind if you die, will have to take on the burden of your debt. However, every situation is different so before you decide if life insurance is for you, do plenty of research to compare life insurance products that are currently available.
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