Although most mortgage lenders no longer insist that their customers take out a life assurance policy, for the vast majority of borrowers it makes sense to have protection in place.
For most homeowners their property is likely to be their biggest asset – and consequently, their mortgage is likely to be their biggest debt.
If you die before the mortgage is repaid you must consider what position this leaves your loved ones in, if you don’t have a life assurance policy to clear the debt.
This is particularly relevant where you own your property with a spouse or partner, and even more so if you have children at home.
Buying a home with a partner
Life assurance is an extremely important consideration if you’re buying your home as a couple.
This is because the amount that you borrow, and therefore the monthly mortgage payments, are likely to have been calculated on your joint earnings. If you or your partner were to die before the mortgage ends, would the remaining partner be able to afford the monthly mortgage payments?
Having a life assurance policy in place would allow the surviving partner to remain in the family home, without worrying about paying the monthly mortgage costs. This is because the policy will pay out a lump sum on death that can be used to repay the outstanding balance of the mortgage loan.
Protecting your children’s inheritance
Whether you own your home with a partner or alone, if you have children, you should consider life assurance as a means of protecting your children’s inheritance if you die before the mortgage is repaid.
If you own your property in sole name, the mortgage will need to be repaid if you die, usually by selling the property.
Having a life assurance policy in place will ensure that your beneficiaries can repay the mortgage loan, allowing them to retain the property, or receive its full value if they decide to sell.
Life assurance for rental properties
Some landlords decide to take out a life assurance policy to protect their buy-to-let mortgages.
By having life cover in place, the buy-to-let mortgages will be repaid on death, which may allow your beneficiaries to retain ownership of your property portfolio, or receive their full value if they decide to sell.
Do I need any additional life assurance?
While it is prudent to protect your mortgage with life assurance, it is often only the tip of the iceberg when assessing the financial loss to your household if you should die prematurely.
Many people need additional life assurance to protect their families.
Our article ‘family protection – why you may need more than you think’ [LINK] explains why you should consider family protection to ensure your loved ones can maintain their standard of living if you die.
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Life Assurance plans typically have no cash in value at any time and cover will cease at the end of term. If premiums stop, then cover will lapse. You should review the level of cover required on a regular basis to ensure that it keeps in line with your earnings, otherwise, cover may be less than you need. If any relevant information provided, when applying, is not disclosed accurately and honestly, this could result in any cover offered becoming invalid and / or may result in the non-payment of any future claims.