Safeguarding your home and loved ones from financial hardship
Getting a mortgage is one of the main reasons people take out life insurance. Although it is not strictly mandatory when buying a house, having a policy can provide crucial financial security for your loved ones if you die while still paying off your home. Getting life insurance means your family might be able to stay in the family home rather than facing the stress of selling it if they cannot afford the monthly repayments.
If you have dependants who rely on your income, such as a partner and children, taking out life insurance provides an essential financial safety net. It can also be extremely helpful if you are a landlord managing buy-to-let properties. By securing cover for these specific mortgages, your loved ones will avoid complex financial problems or forced property sales during tough times.
Choosing the right cover
Despite the clear benefits, many mortgage owners do not have life, income, or critical illness cover. This means millions of homeowners could lack the essential safety net needed to support their families if the worst happens. There are various types of life insurance available, and the kind of mortgage you hold usually determines which policy you should choose.
With mortgage life insurance, commonly called decreasing cover, you purchase a policy for a set amount that reduces as your mortgage repayments progress. Meanwhile, your monthly premiums stay exactly the same.
Alternatively, level term life insurance keeps the cover amount the same throughout the entire policy term. You might choose this if you have an interest-only mortgage or want to ensure your repayment mortgage is paid off, leaving some money for other expenses.
Protecting your financial future
When you take out an increasing cover policy, the amount you’re insured for rises each year by a pre-agreed amount, helping to protect your loved ones from the rising cost of living. Family income benefit works differently; instead of a single tax-free lump sum, it offers regular tax-free payments to your loved ones each month.
These payments can effortlessly cover your mortgage obligations and regular household bills. Moreover, critical illness cover pays a lump sum if you are diagnosed with a listed condition, enabling you to clear your mortgage or pay for medical treatments while you focus on recovery.
You can cancel your life insurance at any time since lenders do not legally require you to keep it. However, you should think carefully before proceeding.
If you wish to cancel your policy just to save money, it is always advisable to consult an independent financial advisor who might be able to help you switch to a more affordable option. Taking out a policy for a fixed term also allows you to adjust your cover as your personal circumstances change over time.
Looking beyond the mortgage
Even if you do not have a mortgage, life insurance provides essential protection for your household. For instance, if you are renting a home with your family, a solid policy can cover their ongoing rent or even offer enough funds for them to purchase a house in the future.
Buying a property is a significant financial commitment, especially with house prices remaining high. Without any protection in place, your family could find it difficult to maintain their current lifestyle if your income suddenly stops.
When purchasing a house, you must also consider other important forms of protection. Lenders will require you to have buildings insurance in place by the time of the exchange of contracts to cover significant structural damage.
You should also consider contents insurance to safeguard your personal belongings. If you are renting out a property, specialist landlord insurance is essential to cover property damage and loss of rental income. Home buyers’ protection insurance is another valuable option, allowing you to recover conveyancing and survey fees if your property purchase falls through.
