While most individuals see the importance of having life assurance in place to pay off their mortgage if they die, we find that many people are significantly under-insured when it comes to protecting their family’s standard of living.
Having your mortgage repaid if you die is a great help to your loved ones, and individuals with a mortgage should consider a life assurance policy to repay the debt on death – particularly those who share their home with a spouse, partner, or children.
But clearing the mortgage is likely to be only the start of your family’s financial concerns.
Loss of lifetime income
Let’s take the example of Max and Sarah, a 45-year-old married couple with two young children. They already have a life assurance policy in place that will repay their mortgage.
Max and Sarah are both employed – Max earns an annual salary of £50,000 and Sarah’s salary is £40,000.
If either Max or Sarah were to die, the remaining spouse has lost the net income from their salary for life.
| Gross salary | Net salary after tax & NI |
Max | £50,000 per annum | £38,024 per annum |
Sarah | £40,000 per annum | £31,224 per annum |
This means that if Max died tomorrow, the household has lost a total of £760,480 of future net income, and if Sarah died the loss is £624,480. This assumes that both would have worked until age 65 and that their incomes (and rates of income tax) remain level throughout.
You can see that while it is a great help to have the mortgage repaid, it is really just the tip of the iceberg when it comes to the financial loss that the family has suffered.
What’s the solution?
Max and Sarah would be advised to take out life assurance to protect each other and their children in the event of premature death, in addition to their existing mortgage protection policy.
In this instance we would recommend that they consider a Family Income Benefit policy.
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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.