Life Insurance and Why you Need it When Getting a Mortgage
Legally speaking, you don’t need life insurance when you get a mortgage, as the only mandatory requirements are that you have adequate buildings insurance in place. Despite not being a legal requirement for a mortgage, for those with families, it is something of a necessity, if for no other reason than because of the peace of mind it offers.
If you don’t take out life insurance and something were to happen to you, your family will need to somehow keep paying the mortgage to stay in the family home. However, when a life insurance policy is in place, it will pay out after your death, most often providing enough to pay off the mortgage and leaving your loved ones in a much more comfortable position.
Complicated Living Arrangements
Not having life insurance when you’re single and have no dependants is not such a big issue, as your property could simply be sold to cover the mortgage debt if you passed away. However, many people’s living arrangements are not as clear cut as this and an insurance payout can provide welcome funds to reduce or pay of the mortgage and allow people to remain in place after your death.
Buy to Let Portfolio Legacy
Some people who have a large buy to let property portfolio are under the misconception that if they were to die, the monthly income they provide would just continue ad infinitum. However, in truth, if you’re the sole borrower for all those mortgages, what will most probably happen is that your portfolio could be sold off to make up your estate. This eventuality raises the spectre of things like inheritance tax that could take a big government sized bite out of your family’s legacy.
The payout that life insurance provides would allow you to perhaps buy one or more of your buy to let properties outright, meaning that your family could keep it and keep benefitting from the income it offers.
Other Living Costs
What must not be forgotten is that your mortgage payments are not the only expense your loved ones will have to find if you were to pass away. If there are children in the picture, the monthly outgoings can be considerable with things like childcare, clothes, food and a seemingly endless stream of things to pay for. Life insurance policies can be designed to either pay off a mortgage or provide a monthly income to make what can be a very troubling time that much easier.
Life insurance is not a legal requirement when getting a mortgage, but it does make a whole lot of sense, particularly for people with dependants who may suffer if no contingencies are put in place to help them if the worst were to happen. No one wants to think about what would happen is someone in the family dies, but it’s a fact of life and as such, measures should really be taken to minimise the impact.
Just like with mortgages, there are a million and one insurance policies out there, offering a variety of different benefits and payouts. We’d recommend talking to your financial advisor or an insurance professional to get the lowdown on the best policies on the market. Whether or not you choose to take life insurance is of course, your prerogative, but it’s definitely worth bearing in mind.