Mortgages and Life Insurance

Why Isn't Mortgage Life Insurance More Common?

 

You’re Never Too Young For Mortgage Life Insurance

If you’re not married or don’t have children when you buy your first property, it can be difficult to grasp why Mortgage Life Insurance Cover is so important.

Part of the problem is that the UK property market has been racing away for years, so there’s a whole generation of young buyers who’ve never seen property prices do anything except rise.

If you rely on this to continue indefinitely, then you’re ignoring the very real risk that, following your death, or that of your partner, you can’t dispose of the property for at least the same price that you paid.

A Mortgage can be a life long expense, which is why it makes sense to protect your payments with the right kind of insurance

Right now, the market is still in rude health with no shortage of buyers. But Britain’s property market is highly cyclical and could be very different in a few years time. Just think back to the financial crisis and why interest rates are still at their lowest levels in history.

After the prolonged boom we’ve enjoyed in property prices, you or your partner could even be facing negative equity when you come to sell the property.

What’s more, with one of you gone, it’s unlikely that the survivor could pay the mortgage alone.

In this scenario, your death would leave your partner with a house that gets repossessed and possibly debts that last a lifetime.

 

Building a Home and Protecting Your Mortgage with Life Insurance

One reason why you shouldn’t discount Mortgage Life Cover is that while you may be objective now about the thought of disposing of the property at some point down the line, this might change over time. After many happy years in a house and neighbourhood, you or your partner may not want to sell up the home that contains so many memories.

When you make a home out of a property, the last thing you would want to do is lose it over a few missed mortgage payments

There’s also the issue of what you could expect to make from a property sale. Even if you left your half of the property to your partner, and it had risen in value, they might not walk away with enough to buy a similar property. Remember, it took two of you to buy the house in the first place.

This doesn’t stack up well compared to spending what could be as little as, say, £10 a month on Life Insurance and leaving your partner with sufficient funds to clear the mortgage outright.

The Drewberry 2017 Wealth & Protection Survey has revealed that 1 in 4 people in the UK have mortgage debt of at least £100,000. Without some kind of protection, it’s quite easy for this debt to be passed on to your loved ones.

 

Adding Critical Illness Cover to Your Mortgage Life Insurance

Many homebuyers also take out Critical Illness Cover (CIC), which means the mortgage could be repaid if one of you suffers a critical illness.By adding Critical Illness Cover to your Mortgage Life Insurance policy, you can ensure that your loved ones are protected if you fall ill and are unable to bring in income to pay the mortgage.

However, we would usually recommend Income Protection Insurance before Critical Illness Cover as this would do the same job while covering you for a far wider range of conditions. It pays a regular income that will cover the mortgage and other monthly outgoings if either of you can’t work due to illness or injury.

In fact, if it comes to a ‘toss up’ between Income Protection and Life Insurance, the former should take priority as the chances of illness or injury are far higher than you dying before the end of your mortgage term.

You can learn more about this with our handy family insurance tool which helps families and couples to work out what types of protection insurance would be most appropriate for them.

Samantha Haffenden-Angear, Independent Protection expert at Drewberry, can tell you everything you need to know about Income Protection and Life Insurance.

More than 75% of people own car insurance, but only 36% own Life Insurance. Even few than that, only 6% of people own Income Protection.

When you consider the consequences of being without any kind of income and having a mortgage to pay, you can see why it’s important to protect your earnings if the worst were to happen. Don’t hesitate to get in touch with our advisers if you are still without protection.

Samantha Haffenden-Angear
Independent Protection Expert

 

Get Cheaper Life Cover by Applying for Mortgage Insurance Young

The other reason why you should consider Mortgage Life Cover while you’re still young is simply the cost. Life Insurance is, understandably, cheaper for younger people. Because the premiums can be locked in from the outset if you apply for Guaranteed Mortgage Life Insurance Premiums, it can cost about the same (in total) to take out cover when you’re young and single as it does to wait until you’re married with kids.Despite paying premiums for longer, taking out Life Insurance when you're young can save you money – especially if you have guaranteed premiums.

In the below example, it will cost a 30-year old couple £490 more to take out 25 years of cover than it will to take out 15 years of cover when they reach 40. Effectively, this means that they’d benefit from having an extra 10 years of joint life cover for at a cost of just £49 a year.

If you’d included Critical Illness Cover alongside Mortgage Life Insurance, then an extra 10 years of joint life cover would cost out at just £48.20 a year (a lot less than a single month’s premiums).

 

Monthly Premiums for £200,000 of Decreasing Term Joint Life Mortgage Insurance

Life Insurance Only

30 year old

Insurer

AIG

Term

25 years

Total Cost

£11.54 per month

40 year old

Insurer

AIG

Term

15 years

Total Cost

£16.51 per month

Life and Critical Illness Cover

30 year old

Insurer

Vitality

Term

25 years

Total Cost

£64.32 per month

40 year old

Insurer

Vitality

Term

15 years

Total Cost

£104.52 per month

We’ve quoted Vitality as it’s the most comprehensive policy on the market but less extensive cover is available for around 25% less. Life insurers were chosen because they were the lowest priced for this example as at 3/07/2017.

Robert Rutherford
Client Support Specialist at Drewberry

Taking the above graph as an example, considering what a 30-year old couple stands to gain for just £11.54 a month, taking out life Life Cover alongside your mortgage looks perfectly sensible – whether you have kids or not.

Take care when buying Mortgage Life cover. Rather than picking the most convenient option, talk to an adviser who will make the process a lot easier.

Just don’t get lulled into the classic trap that so many new buyers fall into, namely buying the cover that’s being offered by your mortgage broker without doing your research.

It may seem like the most convenient option but, in most cases, they’ll be tied to just one insurer or a small panel.

If you talk to an independent insurance adviser, they can search the whole market for you and find you the best deal for your needs. You usually won’t be charged a fee for this advice and, more often than not, the premiums you pay will be exactly the same as going direct to a life insurer.

Tom Conner, Drewberry Director, can put you in touch with Life Insurance experts to help you find the right policy for your needs.

Not enough people are aware of the purpose of Mortgage Life Cover or how it could benefit them. That’s why Drewberry Insurance experts are here to help. Contact our friendly team today on 01273646484 to find out more about Mortgage Insurance and whether it’s right for you.

Tom Conner
Director of Drewberry

I’ve held a policy with Drewberry for several years now. They are always friendly, insightful and offer great service.

Dan Pettitt
13/01/2021
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