How Mortgage Insurance Fits with Group Life Insurance

One of the main reasons to take out life cover is to protect a mortgage loan. If the policyholder passes away within the policy term (which should coincide with the length of the home loan) then the policy would payout a sum large enough to repay the loan in full.

When deciding how much cover to take out consideration needs to be given to any employer-provided benefits, especially with regards to group insurance benefits. Some companies offer an amount of life insurance as part of their employee benefits package, which is often overlooked as a valuable source of family protection.

Group life cover explained

Group life insurance is a life cover plan that provides cover for multiple individuals. Many companies offer this form of protection as an employee benefit where the company pays the monthly premiums on behalf of their staff. If the firm is not prepared to pay the monthly premiums the plan can also be set up as a voluntary benefit where staff have the option to pay for the cover themselves.

Although it does vary from scheme to scheme, it is common for the amount of cover available to be around four times gross annual earnings. For example, if your company pays you £40,000 per annum you would be entitled to cover of £160,000.

Personal versus group cover

It is very important to note that when you leave the company your insurance benefits cease as the company pays the premiums for its employees only. This is one of the main reasons to arrange an individual plan to cover a long-term financial commitment, such a mortgage loan. If you decide to leave your company and therefore your group scheme you may need to re-insure at an older age with higher rates.

Having life insurance as an employee benefit (as part of a group life scheme) is a great benefit to have for family protection purposes but it is usually best to take out another policy in the individual market for mortgage protection purposes.

With life insurance for mortgages the plan is designed specifically to provide enough cover to protect against the potential risk of loan default, with the amount of cover mirroring the amount outstanding on the loan. The plan can also be taken out in joint names to provide partner protection when a loan is taken out together.

By taking out a separate plan to protect your home loan the entire sum insured under the group life policy can be used for family rather than loan protection purposes.