Do I Need Life Insurance for a Mortgage?
Strictly speaking, you don’t need a life insurance policy for a mortgage. It is not required by law in the United Kingdom. But, still, a lot of us who take out a mortgage also take out life insurance. We will discuss the benefits of taking out life insurance when you take out a mortgage or buy a new home without a mortgage in this article.
Something which we must not do is to undervalue the importance of insurance. In the United States, you are required by law to take out a whole host of insurances to obtain a mortgage. The requirements vary from state to state, and most states require you to take out different kinds of insurance.
The insurance industry in the UK works a little bit differently than in the US. In the UK, the only kind of insurance you need when you take out a mortgage in the UK is building insurance. Building insurance is the only essential insurance.
What if my mortgage provider or broker insists I need to take out their insurance?
From a legal standpoint, your insurance lender can’t force you to take out life insurance. If they tell you your mortgage is dependant on taking out insurance with their organisation, just tell them you are well-informed and you understand you are not required to take out life insurance.
When you are contemplating life insurance or any other kind of insurance for that matter, you should shop around for a quote. Not all life insurances are suited when it comes to covering the cost of a mortgage.
Don’t forget about the equity in the home.
If something happens the equity in your home can always be used to top of finances if the surviving family members need to pay for the funeral or other expenses related to the home. Your partner may have enough money to carry on paying for the mortgage every month, but could struggle when it comes to other expenses associated with a funeral.
Before you decide to sign up for a life insurance plan, you do need to weigh up all of the options.
For instance, as the job market in the UK is rather volatile, and zero-hours contracts are popular, it is a good idea for both partners responsible for a mortgage to consider taking out life insurance.
What would happen if one partner died and the other one lost his or her job? That is a matter which you need to discuss. Investing in life insurance and an insurance policy to cover a loss of income are both good ideas, and more important now than ever before.
Any type of insurance policy which ensures you can still keep a roof over your head should the worse happen, could prove to be a good investment for both of you. Above all, it would give you peace of mind.
The benefits of having life insurance
What are the top reasons you should take out life insurance? It depends on your circumstances, and as previously mentioned, it is important to find the right life insurance which is tailored towards your personal needs.
In the UK, there are two different types of life insurance you can get to cover your mortgage. The most common type is decreasing life cover. This kind of insurance pays off what is left on your mortgage. The other insurance type pays out a set lump simple if you die within a pre-agreed term.
If you would like to have extra cash over once the mortgage has been paid off, you should go for the second option which is often called a level term life insurance.
The benefit of a fixed premium
When you look into taking out life insurance, you will also discover there are two different types of payments. You can choose to pay a fixed monthly premium, or you can opt for a reviewable premium.
A reviewable premium may sound great at first as you pay less when you first start to pay for it. However, reviewable premiums will cost more as you age, and can become very costly if encounter a health problem.
What is a guaranteed premium?
A guaranteed premium is the agreed amount your family is going to receive if you die. There are some life insurance policies which offer none fixed premiums. They may, for instance, be linked to other investments such as a stocks and shares portfolio.
They are not a good idea. The best life insurances are the ones which offer you a fixed lump sum. An agreed lump sum means you know exactly how much you are going to receive.
What about risk?
The older you are when you take out life insurance, the more it is going to cost you. When it comes to life insurance it is important to stay healthy. When you take out life insurance, you must answer lifestyle questions. If you are a pilot who is into flying a vintage aircraft on the weekends, and smoke, your life insurance is going to cost you more.
Risk assessment is always part of life insurance. If you have had any health problems, you may even be asked to attend a medical. This is common if you are a bit older and want to take out life insurance.
You don’t need to take out life insurance, but it is a good idea. It will give you and your dependents peace of mind. As always, make sure you understand the insurance before you sign on the dotted on the line.