Did You Think about a Life Cover for Your Mortgage?

Life cover for mortgage is also called mortgage protection because that is exactly what it offers. If you have a house, you know that monthly payments are not optional.

And if something were to happen to you, that responsibility falls upon your loved ones (or dependents). Life insurance for a mortgage is the best way to take that burden off their shoulders.

Under the clauses of these policies, you pay a premium for a period of time and if you die before the mortgage is entirely paid off, the insurer takes care of the balance.

Now, you don’t have to worry about paying high premiums for that period of time because these policies get cheaper as you keep paying your mortgage while you are working and healthy.

Types of Coverage

Depending on who takes your responsibilities in the event of your death, you can choose between two types of life cover for mortgage—decreasing term insurance and level term insurance.

If you take a decreasing term insurance policy, the payout decreases over time as you keep clearing the debt every month. But if you get a level-term policy, you will pay a little extra but the payout does not decrease over time. It is the same irrespective of the balance mortgage payments and the extra money can be used by your dependents to take care of other financials like loans and credit cards.

How Much Insurance Cover Do You Need?

You can figure out the life cover for a mortgage online using a mortgage life insurance calculator. But typically, your policy depends on a few factors.

Mortgage Term: This is mostly what influences how much you need. If your mortgage term is long, you will have more monthly payments. So does your insurer’s repayment commitment.

Income: Your expenditures will also influence the coverage you need. For example, if you’re the only breadwinner, you might need more cover than in a case where you are sharing the responsibilities with a spouse or sibling or dependent.

Kids: If you have children, you might need to take their education and future expenses, while they are still home, into account.

Debts: If you have family debts or car loans to pay off, you want to add that too.

Type of Policy: If you get two single policies (depending usually on your marital status), you will have to pay for both and get two payouts. The average monthly cost for a single life insurance policy is £11.

But if you get a joint policy, you will pay less but get only one payout. The average monthly cost for a joint life insurance policy is £15.40. There is no right answer here. Depends entirely on your circumstances.

The Bottom Line

You might think that things are going great and you’re financially secure. So, this isn’t anything to worry about. But surprises like job losses due to COVID-19, for example, don’t come with a warning.

This applies to the future of your insurer too. In case you are doing okay but they go bust, the Financial Services Compensation Scheme will find you another insurer or give you a new policy. But there are some clauses there and you should check out the details yourself. Good luck!