Do I need Life Insurance if I have a mortgage?

Buying a house is most likely to be one the largest financial commitments that you undertake in your life. And although setting up a Life Insurance policy with your mortgage isn’t a statutory requirement, it is strongly advisable, especially if you have a family.

As with many aspects of planning ahead in life, thinking about what would happen should you die can be uncomfortable, but without Life Insurance, your mortgage debt would be passed on to your family and children.

By putting a policy in place, you are protecting your family from large debts, or worse, having to leave the family home when the monthly payments become unaffordable.

What is mortgage life insurance?

Life insurance taken out with your mortgage is a type of policy that will provide financial support to your close family in the event of your death.

Its ultimate purpose is to minimise the financial impact of your death upon your family, to ensure they don’t experience financial hardship when it comes to covering the household costs. A lump sum is usually paid out to your loved ones to help them cover outgoing expenses such as the mortgage payment, domestic bills, and childcare costs.

Mortgage related Life insurance comes in two main forms:

• Mortgage Protection (decreasing term assurance) : this policy is set for a specific number of years – usually how long you have left to pay on a repayment mortgage – and your monthly premiums are fixed. As the amount left to pay on your repayment mortgage decreases over time, so does the cover amount. The pay out should effectively be enough to cover the outstanding mortgage debt regardless of what point you pass away during the policy term.

• Family Life Protection (level term insurance) : this cover lasts for a specific number of years, and the pay out amount and monthly premiums are fixed. You can choose to protect your cover amount from the effects of inflation to make sure the amount reflects the rise in the cost of living. This type of cover can help to maintain the living standards of your family as while it could be used to pay off an interest-only mortgage or keep up mortgage repayments, it can also help make up for your lost salary when it comes to general living costs and monthly outgoings.

 Things to keep in mind

When you’re taking out life insurance, there are a few things to consider.

It is important that you have all the relevant information at hand and understand the policy before you make your decision. What amount do you need it to cover? Does the level of cover need to reduce as your mortgage loan is repaid over time? How much will your beneficiaries receive compared to how much they will need?

You must also consider your situation. The type of policy you take out could depend on factors such as your age, health, lifestyle and family situation. You may want to get set up cover for more than just your mortgage payments in case something happens and your family needs extra financial support, especially if you have young children.

Seeking professional advice

What policy you choose to get will depend on your budget and individual circumstances.

If you can, whole-of-life offers the most coverage, and should guarantee your family financial security when you pass. However, everyone’s individual circumstances are different so it’s important to talk to an expert to ensure you understand fully what would be best for you.

At Mother Goose Mortgages, we have over 20 years of experience in mortgages and protection, and will always give you the expert advice and guidance you need. Our life insurance policies will give you knowledge and security of knowing your family will be taken care of should anything happen to you.

Talk to us today on 01892 862534 to see how we can help you.