Do you need life insurance?
These are really difficult questions to answer and uncomfortable to ask, but what if you or your partner was no longer around? Could you:
- Afford mortgage repayments?
- What about household bills?
- Maintain your current standard of living?
- Who would look after the children?
- Would you have to go back to work?
- Could you afford childcare costs?
Securing a life insurance policy could help provide answers to all these tough questions, providing financial peace of mind.
For most, taking out a mortgage is the largest debt that we’ll incur during our lifetime.
But, what’s the most effective way of protecting your family home, so not to burden loved ones with a crippling debt if the worst were to happen to you?
When it comes to life insurance you have 2 main options; decreasing term or level term cover.
Decreasing term or level term?
A decreasing term policy, sometimes referred to as ‘mortgage life insurance’, is the most common and cost-effective way of covering your mortgage debt.
It’s designed to help protect a standard repayment mortgage. The size of the policy payout reduces over time in line with your mortgage balance.
This means your loved ones would receive enough of a financial payout to clear the mortgage in full. However, there would not be funds left over to provide an inheritance or fund on-going family living costs.
In contrast, a payout from a level term policy remains fixed (or ‘level’) throughout the policy.
Regardless of whether you die right at the start or at the end of the policy, your beneficiaries would receive a fixed lump cash sum.
Both these options are term-based policies. Which means cover will only last for a set period of time and the policy has a defined start and end date.
The term length
To fully protect the family home, it makes sense that your life insurance cover aligns with the length of your mortgage term.
However, if you have other reasons for needing life insurance, like meeting the future living costs or to leave an inheritance, you may want the cover to exceed your mortgage.
Do you have children?
Whether you have children or not is highly likely to impact the type of life insurance you decide to take out.
If you do not have dependents and only need to cover the mortgage, then decreasing term may provide sufficient coverage.
However, if you have children and wish to leave an additional lump sum, as well as cover the mortgage, then level term may better suited.
The cost of your monthly premiums
No one wants to pay more than they have to right, (especially for life insurance!)
As a general rule, level term premiums, which provide a greater level of protection, are around 20% more expensive compared with decreasing term.
However, it’s important to remember that there are many factors which impact premium costs, such as your age, health, weight/BMI, alcohol intake, your occupation and whether you smoke.
With decreasing term cover the financial risk to the insurer reduces over time, which helps to keep monthly premiums lower.
In reality, there’s no right or wrong way to protect your family home. It’s a case of finding the right life insurance policy to protect your particular needs.
From our experience at Reassured, many homeowners, especially first-time buyers, take out the first quote they see, often through either through their mortgage lender or via their preferred insurer.
We believe the very best way of securing the right policy for the best price is to shop around and compare quotes.
You could do this yourself online, or you could save yourself time and money and get a broker to do it on your behalf.
The most important thing is to make sure you do have sufficient cover in place.
If you don’t have life cover, why not start comparing quotes today. Then get on with living your life to the full, safe in the knowledge your loved ones’ financial future is safe and secure.
This article was written by life insurance broker, Reassured, for TheYorkshireDad.com.