Mortgage life insurance
Many people believe that it is mandatory to purchase life insurance from their mortgage provider when taking out a mortgage . This is not the case! You could actually save yourself hundreds of pounds, just by shopping around and getting a few quotes tailored to your specific circumstances from different life insurance providers . Approach the mortgage/life insurance cross-sell from your mortgage provider with caution to avoid unnecessarily pricey policies and keep the following points in mind.
Why do I need life insurance when I take out a mortgage?
You may not have any reason to purchase life insurance before you take out a mortgage. However, ensuring that you have adequate life insurance when you take out a mortgage is vital, particularly if you have a spouse or children who are dependent on your income to make the mortgage repayments. In general, as long as your family cannot afford to survive without your income, you cannot afford to be without life insurance.
Which type of life insurance?
The type of life insurance that suits your requirements will depend on the type of mortgage you have; it will also depend on whether you have savings or investments elsewhere, and whether you wish the life insurance policy to simply pay off your mortgage in the event of your death, or whether you also require any payout to provide for your dependents.
In general, if you have a repayment mortgage, you may wish to consider a decreasing term life insurance plan. Decreasing term life insurance decreases gradually over the term of the insurance policy in line with your outstanding mortgage balance, so that in the event of your death at any time within the term, the life insurance payout will be sufficient to repay the mortgage in full. The life insurance term should be selected to cease once your mortgage is expected to be repaid.
If you have an interest-only mortgage, your best life insurance option may be level term life insurance . Level term life insurance provides a guaranteed payout in the event of your death within the term which should be sufficient to repay the capital on your mortgage. This form of life insurance does not decrease in value, as with an interest only mortgage, the capital amount owing remains unchanged until the end of the term when your investments elsewhere are used to repay the loan in full.
Payment protection
Life insurance should not be confused with general mortgage payment protection insurance. Payment protection insurance will usually only cover your repayments in the event of your being made redundant, becoming ill or unable to work. Life insurance should be purchased in order to cover your outstanding mortgage balance in the event of your death, to avoid your dependents being burdened with the expense.
Shop around!
Although it may seem easier to purchase your life insurance from your mortgage provider, taking some time to compare the market may lead you to a much better value deal elsewhere, and save you a lot of money over the course of your mortgage. Shopping around for your best value life insurance can be a time consuming and confusing task; but you should ensure you receive a number of different quotes before committing to a policy. The easiest way to compare the life insurance market is to use an independent life insurance comparison service ; be sure to receive a quote that is tailored to your individual circumstances by speaking with an independent expert, and avoid the costly mistake of finding that you are over or under insured at a later date.
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