Protecting your mortgage can be a huge consideration when you buy a house. Many homeowners are an average age of 31 when they buy their first home, and life insurance may not be at the top of the priority list. However, if you were to pass away, the mortgage payments could become a huge financial burden for your loved ones.
By choosing the right life insurance policy, you can ensure your mortgage is covered without putting your family under huge financial stress. So, which type of life insurance cover can help to protect your mortgage and ensure loved ones are not left with a huge bill?
If you pass away while you still have a mortgage and you do not have the right insurance cover, your assets and savings will be totalled to create your estate. If there is not enough in your estate to pay the mortgage, the lender will repossess the property.
This could be devastating for any family you have left behind, especially if they cannot afford the mortgage payments without your income or an insurance pay-out. If you have a joint mortgage and no life insurance protection, the debt will become the responsibility of the other person on the mortgage.
For these reasons, it could be hugely beneficial to have the right life insurance policy in place to cover your mortgage.
If you do not have any dependents like a spouse or children, you may not need mortgage protection. The policy is mostly helpful to those who want to ensure the house is left to someone.
When it comes to life insurance cover specifically for mortgages, there are two main types. The choice you make can depend on the type of mortgage you have.
Level term life insurance is a standard form of life insurance that will pay out a lump sum, that your dependents are able to use for a number of different purposes including living costs and expenses. This policy is only suitable for an interest-only mortgage.
This is ideal if you are looking for a lump sum of money to leave to your family, in order to help with any remaining mortgage costs on an interest-only mortgage.
The most cost-effective cover for protecting your mortgage is decreasing term life insurance. You will likely be offered this from your mortgage lender, but you are under no obligation to buy it from them.
This type of life insurance is also called mortgage life insurance, because it is designed specifically for paying off a repayment mortgage. The amount of cover will reduce in line with your mortgage repayments, and the policy will generally last the same amount of time as your mortgage.
If you were to pass away, the pay-out should be enough for your family to pay off the mortgage. It is important that you consider having the policy written in trust. This means the pay-out will go to your dependents, and will not become part of your estate. If the pay-out becomes part of your estate, it could be hit with Inheritance Tax.