by Mark Johnston
A mortgage is the biggest financial commitment anyone will ever have and if the unthinkable ever happened, how would a family cope with a large debt and a reduced income.
Life insurance can be very low on people’s lists of priorities when they are in the process of buying a home.
Along with general family protection, one of the most common reasons for taking out life insurance is to protect a mortgage loan.
Life insurance may seem like an unnecessary additional cost but it is worth considering seriously. This can be particularly crucial if borrowers have family or other dependents, as it can make sure that they can keep a roof over their heads in the event of the borrower’s death.
In the event of a claim during the term, the life insurance company will pay the policy holders beneficiaries or dependents the sum assured as a tax free lump sum. In short this type of insurance is not that complicated, it is designed to payout a lump sum amount that is sufficient enough to repay a mortgage debt should the policy holder die with in the policy term.
The key options to consider for life insurance cover is the amount of cover a borrower would like and how long the policy should run for. It makes sense to set the amount of cover equal to the amount of debt outstanding on a mortgage and the term length equal to the amount of time the mortgage has left to run.
Monthly payments for these policies are usually relatively low, below are some examples of how little theses costs are:
The Co-Operative charges £13.39 a month, where as the HSBC charges £10.50 a month. These quotes are based on £100,000 life cover for 20 years level term, for a non smoking male aged 35 and in normal health.
Many mortgage lenders and brokers are likely to offer life insurance when a potential home buyer takes out a mortgage with them; this however is not always the cheapest option. According to new research less than a fifth of Britons felt they needed help purchasing life insurance.
There are different types of policies and they work in different ways such as:
Level term assurance: this means the amount covered will remain the same through out the duration of the policy.
Decreasing term assurance: this means as the outstanding loan gets smaller the amount covered decreases too.
Most policies may also include a terminal illness benefit which means that if the policy holder is diagnosed with a terminal illness then the policy will still pay out on death, even though the insurer knows beforehand that they are ill.
A wavier premium is also sometimes included in a policy for free, which means if a policy holder became involuntarily unemployed or too ill to work then the life policy payments would still be paid even though the holder may n
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