Do I need life insurance and mortgage protection?

If you’re wondering, do I need life insurance and mortgage protection?, it helps to understand the types of plans available. Mortgage protection insurance is a payment protection plan designed to cover your mortgage if you cannot work.

It covers costs if the policyholder cannot work for a period of time. You can choose to cover unemployment, sickness, or accident.

When deciding, do I need life insurance and mortgage protection?, your advisor will suggest the best plan based on your priorities. The payment period normally ranges from 12 to 24 months. This may be sooner if you return to work.

Mortgage life insurance is a type of cover that helps repay your mortgage if you die. It covers death rather than Illness and only pays out once.

By examining each policy in greater detail, you can determine whether either are suitable for you.

Do I need life insurance and mortgage protection? What is mortgage protection?

The plan covers your monthly mortgage payment. However, some providers allow you to cover bills as well.

The maximum is usually 125% of your mortgage amount. You can claim after being out of work for a specific number of days.

After 30 days, the policy starts paying you a set amount each month.

Regarding any extra cover for bills, you must wait through an exclusion period before you can claim. This is usually between 30 and 180 days.

If you make a claim, the provider pays you directly, not the lender.

What is the monthly cost of mortgage protection?

Costs do vary from provider to provider. Providers also consider other factors. These include your repayment, occupation, age, and salary.

People in hazardous jobs may pay higher premiums. Depending on your circumstances, other options may be available.

You could include, shorter waiting periods, wider ranges of cover or even backdated payments.

What Types of Cover Are Available for Life Insurance and Mortgage Protection?

There are three main types of protection. Each one covers a different set of circumstances.

Unemployment

This will only pay out if you cannot work due to redundancy.

Accident and sickness

These pay out if you have become seriously ill or have had an accident.

Combined

To cover both above circumstances.

Some providers also offer cover for the self-employed.

Do I Really Need Life Insurance and Mortgage Protection?

Although life insurance and mortgage protection are not compulsory, many people find they provide valuable financial security. You should consider how you would keep up your mortgage payments if you could not work.

Depending on your situation, alternative products to life insurance and mortgage protection may offer better value.. These include life insurance, critical illness, and income protection.

• If you die, life insurance pays your loved ones a lump sum. Your beneficiaries can use this to clear any outstanding mortgage and help support them financially.
• Critical illness insurance pays you a lump sum if you're diagnosed with a serious illness. Only certain illnesses are covered, and it’s normally offered with Life Insurance.
• Income protection is a more complete plan to cover your mortgage payments and other expenses.
  
  

Insurers base the cover on a percentage of your income, not just your mortgage payments. Also, the payments are typically paid for a longer period than mortgage protection.

Sometimes, it’s as long as you cannot work or until you retire. Because the cover is more complete, the cost tends to be higher.

However, the cover is useful for certain people, particularly if you are in a high-risk occupation.

Talking to a qualified advisor, found on the FCA register, will help answer the question: Do I need life insurance and mortgage protection?

What is mortgage life insurance?

The standard life insurance for a mortgage is known as term assurance. As the name suggests, you purchase protection for a set term which pays out on death.

Terminal Illness is also usually built in. This pays out if you are diagnosed with one of the specified illnesses with a life expectancy of less than 12 months.

The policy has no investment element, so there is no payment to you if you survive the term.

As such, term assurance tends to be the cheapest form of life cover available.

The two most common types are decreasing or level term assurance.

Decreasing term

Decreasing term assurance is the most common for repayment mortgages. The term and sum assured are normally the same as your remaining mortgage.

Each year, the sum assured will decrease roughly in line with the amount your mortgage has reduced.

The monthly premium will normally stay the same throughout the term although some providers will build in a yearly increase.

The policy can be in single or joint names, but if it is a joint policy, it will pay out on the first death.

You should always check that the level of cover is at least equal to your outstanding balance.

Level term

Level term assurance offers the same protection as decreasing term assurance, but the sum assured remains level throughout the term.

Again, it can be in single or joint names and usually pays out on the first death.

Because the sum assured remains level, this type of cover tends to be more expensive, and yearly increases in the premium by some providers are more common.

The Cost of Life Insurance and Mortgage Protection: Do I Need Both?

The cost of term assurance will depend on your age and whether you have any health issues. Monthly premiums will also vary from provider to provider.

If you are young and in good health, it can be a cheap way to protect your mortgage and loved ones.

However, you should remember there is no money return if you survive the term.

Also, if you fail to make a payment, the policy may be cancelled, and the provider may have the right not to reinstate the cover even if the missed payments are made.

Sometimes, this can cause issues if your health situation changes, and obtaining new coverage may be more difficult and expensive.

Get expert advice

Although mortgage protection is not commonly compulsory, it’s normally advisable to have it in place.

Seeking financial advice through regulated advice will help you find the most suitable protection for your circumstances at the most competitive cost. 

Still not sure and wondering, do I need life insurance and mortgage protection? Speak with an expert today. Let Regulated Advice match you with a financial advisor for expert advice.