Answered by Tom Conner
Although it usually makes sense to consider taking out Life Insurance to cover your mortgage loan, it is not normally compulsory. Provided you pass the affordability tests, you can still get a mortgage from a lender regardless of whether you have insurance.
However, even if it isn’t compulsory, there are some very good reasons to purchase protection for your mortgage, particularly if you have a family or are the main contributor to mortgage repayments in your household.
What is Mortgage Life Insurance For?
If you pass away without paying off your mortgage and do not have Life Insurance to cover the cost, the lender / bank would be able to reclaim the remaining loan amount from your personal estate. If you don’t have the funds to pay off the loan, the property may have to be sold to repay the debt. Alternatively, your family may have to keep paying the monthly repayments to stay living in the home.
If you want to pass on your home to your loved ones without passing on your debt, a Life Insurance policy can cover what’s left of the loan. A Life Insurance policy will pay out a lump sum that is typically set at equal value to your mortgage so that the whole loan can be paid off in one go, leaving your loved ones free of a mortgage if you pass away.
Why You Might Need Mortgage Life Insurance
You have no obligation to purchase a Life Insurance policy when you take out a mortgage, but if you have a family or loved ones that you hope to leave your home to after you die, you might want to consider purchasing a policy anyway.
With the payout from a Mortgage Life Insurance policy covering what’s left of your mortgage debt, your loved ones can stay in their home and don’t have to worry about keeping up with repayments.
If you have taken out a joint mortgage with your spouse or partner, you might consider taking out a Joint Life Insurance plan instead of a standard plan that will only cover one policyholder. This type of policy would pay out a lump sum if either partner passed away to cover the mortgage.
What Other Insurance Might You Need?
A Mortgage Life Insurance will help your loved ones cover the mortgage if you die, but that still leaves the risk of you being unable to meet your mortgage repayments while you are alive.
If you are unable to work due to illness or injury, your reduced income means that it will be more difficult to meet your mortgage repayments. To combat the risk of this happening there are insurance products like Critical Illness Insurance and Income Protection Insurance. These will pay out either a lump sum or monthly benefits to help you cover the cost of your mortgage.
If you are interested in protecting your mortgage for the sake of yourself as well as your loved ones, you have the option to take out a combined Life and Critical Illness Mortgage Protection policy. This will pay out a lump sum to cover your mortgage debt if you are diagnosed with a critical illness, diagnosed with a terminal illness, or if you pass away before you have paid off your mortgage. Buying a combined policy is usually more cost effective than buying the two products separately.
There are a range of insurance products to help you and your loved ones protect important financial commitments like a mortgage and there are a lot of policy options to choose from to help you find one that best matches your needs.
If you’re interested in learning more about available or getting quotes from the top UK insurance providers, contact us today on 02084327333.
Head of Protection Advice at Drewberry
Frequently Asked Mortgage Protection Insurance Questions
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