Do you have a life insurance policy to cover your mortgage should the need arise? If not, you need to read this informative guest article:
UK mortgage debt
For most of us, our home is likely to be the single largest purchase we ever make. More importantly, it is a home for our family. Average outstanding mortgage debt currently sits at £121,687 and with house prices continuing to rise, it is unlikely we are going to see a drop in this figure any time soon. Surprisingly, however, many of us still fail to question what would happen to this outstanding debt if we were to pass away before it is paid off.
Without adequate protection in place, this debt is passed on to your loved ones who are required to continue the mortgage repayments or surrender the house. This means that your death could result in your loved ones having to leave the family home. This would cause incredible stress at an already very difficult time. In the UK, there are 52 mortgage possession claims and 37 mortgage possession orders issued everyday due to families being unable to meet their mortgage repayments.
A cost effective way to protect your family from this devastation is by taking out mortgage life insurance. Put simply, this is a life insurance policy taken out for the specific purpose of covering the remaining balance of your property.
Typically, there are two main types of mortgage; interest only and repayment, both of which have a specific life insurance policy type tailored to it. Level term life insurance offers cover for a specified sum assured and if you die within the term of the policy, this total is paid to your loved ones to clear the balance of an interest only mortgage. Alternatively, decreasing life insurance pays out a sum assured which decreases in value throughout the term of the policy to reflect the outstanding balance of a repayment mortgage.
The cost of mortgage life insurance
The cost of mortgage life insurance doesn’t have to be expensive and can start from as little as 20p. The cost of your monthly premium is calculated based on the likelihood you will make a claim on the policy. This risk to this insurer is based on your age, health and smoking status primarily – although, insurers vary in their underwriting criteria. Generally speaking, the younger and healthier you are when you take out a life insurance policy, the cheaper your monthly premiums will be.
The amount of cover you choose will be directly reflected by the balance of your mortgage. For an interest only mortgage, this balance will not change over time and therefore, the sum assured should directly reflect this amount. For repayment mortgages however, it is important to ensure that the sum assured is always enough to cover the outstanding balance of the mortgage even as it decreases. If the decline on your life insurance is faster than the outstanding balance of your mortgage, you could leave your loved ones without enough funds to cover the outstanding balance, therefore creating unnecessary financial strain.
Over time it is common for people to re-mortgage whether this be to acquire funds for renovations, move to a larger property or secure a new deal once your existing mortgage converts to a standard variable. Whatever the reason, this can affect both the outstanding balance and the rate at which it is repaid. As a result, your life insurance policy may no longer reflect the required amount. At point of re-mortgaging it is important to review your existing life insurance policy and make amendments as required.
This can be done either by contacting your existing insurer who may be able to alter your policy and adjust your premiums as required or cancelling your existing policy and arranging a new one which serves your new circumstances.
Don’t pay over the odds
Mortgage life insurance is not a legal requirement but as discussed, having it in place can be essential for securing the financial future of your family. This ensures loved ones can remain in the family home if the worst were to happen to you and not worry about mortgage repayments. The best way to secure cost-effective cover which suits your needs is to use an insurance broker who can not only compare prices on your behalf; a broker can also break down any legal or insurance jargon to ensure you understand all elements of your protection.
Many non-advised brokers offer their services free of charge and can ensure that your policy is tailored to meet your needs exactly. So don’t leave your family unprotected and at risk of losing their family home. Seize the day, be proactive and secure life insurance.