If you've got a mortgage, you'll already know how big it can impact your budget. But what if you pass away before it's paid off? How would your family cover the remaining cost?
Mortgage life insurance is specifically designed to pay off your outstanding mortgage balance in the event of your death. It can ensure that your loved ones are not burdened with the financial responsibility of your home loan.
If you're considering purchasing life insurance for your mortgage, it's essential to have a clear understanding of the policy types available to make an informed decision. We'll look at the main types and how they work in this article.
Do I need life insurance to cover a mortgage?
Having life insurance in place can help protect you and your family if the unthinkable were to happen. It can help cover mortgage payments so that your home remains secure.
There's no legal requirement to have life insurance in place when taking out a mortgage, but it can be beneficial in certain circumstances.
Remember, once you pass away, the mortgage payments still need to be made. If your partner or family are unable to make them, it could result in the loss of the family home. That's where having cover can alleviate any worries or concerns of your family being left in a difficult situation.
Types of mortgage life insurance
Many people don’t realise how important life insurance can be until it’s too late. So it pays to be prepared.
To help you understand the different types of life insurance that can be used to cover a mortgage, which we have outlined below.
Decreasing Term Insurance
With decreasing term insurance, the payout amount decreases over time, usually in line with your mortgage balance. This type of policy is often used to cover a repayment mortgage, where the outstanding balance decreases over years.
Level Term Insurance
Level term insurance provides a fixed coverage amount throughout the entire term of the policy. This means that the payout will remain the same, regardless of any changes to your mortgage balance. As a term life policy, it protects you for a set period of time which can be tailored to the length of your mortgage loan.
Whole life insurance
As a permanent policy, whole life insurance provides cover for your entire life — not just for the term of your mortgage loan. During the policy, both the cost of your premiums and pay-out value is fixed - even as you get older.
It can be an invaluable tool for safeguarding your financial future and providing peace of mind that your family will be taken care of if something happens to you.
One benefit is that it doesn't have to be used to cover your mortgage specifically. The policy can also be used to cover any other financial commitments, such as other debts, funeral expenses or even university tuition for your children.
Joint Life Insurance
If you have a joint mortgage with your partner or spouse, you may consider joint life insurance. This type of policy covers both individuals and pays out upon the death of either person. It can be taken out with either level or decreasing term cover and is usually cheaper than taking out separate policies.
Critical Illness Cover
While not strictly life insurance, critical illness cover can be added to your policy to provide financial protection in the event of a serious illness. This policy can help cover mortgage payments or other expenses if you are unable to work due to a covered illness.
Illnesses that are typically covered can include heart attacks, strokes, certain types of cancer, and other serious medical conditions. Note that not all insurers cover every illness, so be sure to double-check with your chosen provider.
How much life insurance cover do I need for a mortgage?
The amount of cover you need will depend on factors such as the outstanding balance of your mortgage, financial obligations, and personal circumstances.
It's generally recommended to have enough cover to pay off your mortgage in full, so that your family can continue living in the home without financial burden in the event of your death. For example, if you want to cover more than just a mortgage, you may want to consider a policy with a higher amount of cover.
It's also a good idea to speak with a financial advisor or insurance professional to determine the appropriate amount for your situation.
When should I buy cover?
You don’t have to buy life cover when taking out a mortgage loan, but it's a good idea to consider it. Or perhaps you already have a mortgage, but only just realised the importance of having life insurance cover - in which case, it's never too late to get covered.
Ultimately, it's advisable to purchase cover as soon as possible, so that you can start building up your policy and have the peace of mind that your family is provided for.
As well as this, buying cover when you are younger often means cheaper premiums as you are less likely to suffer from health issues. This can be beneficial for those who are on a smaller budget, but still want to protect their family.
Protect your family and home today by exploring the options for life insurance cover. Head online to compare quotes from different providers and find the best deal to suit your needs and budget.