There are many milestones that we encounter as we go through life, but one of the biggest can involve taking out a mortgage.
Purchasing a house is something we’ll always remember, along the same lines as buying our first car or having our first child.
Being a homeowner is an ambition that many of us share. But unless you’re a wealthy inheritor or have just won the lottery, you’re going to need a mortgage to get on the property ladder.
Being a mortgage holder is a big step, and therefore a big commitment. As we all know, our circumstances can change – especially over the course of a mortgage term.So if you have a mortgage, what options are available to you?
Mortgage life insurance explained
If you are a mortgage holder, one type of life cover which is available to you is mortgage life insurance. This type of policy is designed to pay out the sum of your remaining mortgage repayment debt should you pass away.
The main reason that people usually take out a policy of this type is to protect their family and loved ones from the burden of your mortgage. As any mortgage holder will tell you, a mortgage is a high-value commitment that could put a genuine strain on your family’s finances should you die.
A mortgage life insurance policy is not to be confused with other types of life cover, such as level term insurance – even though there are similarities between the two.
A mortgage life insurance policy is designated as a set number of years – usually the amount of time it takes you to pay off your mortgage. This is similar to a level term insurance policy, which is also a set number of years.
Investing in a level term policy can be a more efficient way of ensuring your loved ones are protected in the event of your death. This is because a mortgage life policy is a decreasing life insurance policy, meaning the payout goes down to reflect the level of outstanding mortgage repayments.
It is, therefore, a good idea to find out whether a level term insurance policy is in fact a better option, as level term policies pay out a set amount of money from the outset. This means that the payout could be more than that of a mortgage life policy, but of course it is worth comparing each type of policy thoroughly before making a decision.
Rather than just protect against your death, you may also want to consider a policy which protects your income. An Income protection policy is designed to help you keep up with your mortgage repayments and other living costs in the event that you’re unable to work due to an accident or illness. The policy will pay out monthly tax free sum until you’re able to return to work or your policy ends, which ever happens first.
This type of policy should not be confused with an payment protection policy (PPI) or an accident and sickness policy(ASU) both of which pay out for a limited period only (usually 12 months) and cover isn’t as comprehensive as what an Income Protection policy offers. It’s best to seek advice before you make a decision. Your adviser will be able to search the market and provide you with options designed around your needs.
Should you take out mortgage life insurance?
Mortgage lenders will often advise you to buy mortgage life insurance, but that is usually because they provide a policy that is vastly more expensive than many other insurers out there.
It could be worth considering whether joint or couples policies are right for you. These work in the same way as an individual’s policy, but pay out on the first death. A joint policy is an attractive alternative, but is only suitable if each partner needs the same payout sum.
If you and your partner are considering investing in a joint policy, remember to consider shopping around and looking at individual policies – they can often work out cheaper.
As with any type of life insurance, it helps if you are as healthy as possible before you take out a policy. Even with a fixed term policy such as mortgage life insurance, some providers will offer you lower premiums if you lead a healthy lifestyle.
Things like smoking, diet, your occupation, and even whether you play dangerous sports can all have an effect on the amount you pay for a policy.
If you are a mortgage holder, there are a number of life insurance policies that are available – the key is finding the one that is most suitable for you and your specific needs. Speak to an adviser and they’ll guide you through your options.
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