While not a compulsory requirement for securing a mortgage, it is a good idea to consider life insurance. Life insurance can help your loved ones and dependents to cope financially should you pass away. No one likes to think about death and what will happen to their family if they pass away, but when you have a mortgage to pay, it can help to provide some reassurance to loved ones.
Policies vary, but in general, life insurance will provide a lump sum or regular payments if you die. This money can then be used to pay off the rest of your mortgage, ensuring that your loved ones still have a roof over their heads. It can also be used to help with the cost of household bills, childcare and day-to-day expenses.
A lot of people think that you need to take our life insurance to be accepted for a mortgage. This simply isn’t true. While many mortgage providers will advise you to take our life insurance, it isn’t a requirement. For example, you won’t have your mortgage declined if you don’t have life insurance.
The only type of insurance that you require when taking out a mortgage is buildings insurance. Again, this isn’t technically a legal requirement, but it is often included as a condition of the loan. It will cover you in the event your home is damaged by fire, flood, storms or malicious damage. You need to ensure you have coverage from the date contracts are exchanged, as this is when the property becomes your responsibility.
The question of whether you should get life insurance anyway really depends on your personal circumstances. If you are single and have no dependents, when you pass away, the lender will force your estate to sell the property to pay back the mortgage. In this instance, there would be no need to have insurance in place as there would be no beneficiary.
If you are married and/or have dependents, life insurance can give you some peace of mind that they won’t be forced to move house in the event of your death. You will be able to choose the level of coverage, so you could make it a lump sum that will cover the rest of the mortgage or regular payments that will allow your partner or dependents to continue paying the mortgage.
Another type of insurance which may be relevant to you is mortgage life insurance. This kind of specialist insurance is linked to your mortgage. It offers decreasing term coverage, meaning that as time goes by, the amount of payout decreases. This is because you will have paid off more of your mortgage. As a result, you will need a smaller lump sum to be able to pay the debt in full.
There is another type of insurance called mortgage protection insurance. This helps to ensure you don’t miss payments in the event of long-term illness, an accident or redundancy. This type of cover helps to alleviate your worries that you could miss a mortgage payment and you could face repossession.
Most mortgage protection insurance policies will cover you for up to two years. They will also pay around 65% of your regular income. This doesn’t cover you in the event of death and the policy would end if you pass away.
If you aren’t sure if you need insurance, or which type of coverage is right for you, get in touch with our friendly team today. They will be able to advise you on the types of cover and which would be more suitable for your needs.