Many people opt to take out insurance to protect their mortgage; this is because the mortgage is often the biggest expenditure for the household. If you were to pass away, your partner or children might struggle to meet the mortgage repayments without your income.
There are a number of benefits for mortgage protection insurance, which is separate from your homeowner’s insurance policy (see here to understand the differences). If you have not already taken out a policy, here are 5 reasons why you should consider taking out mortgage protection insurance.
1. It can pay off your mortgage if you pass away
The most important reason for taking out mortgage protection insurance is that it is designed to pay off your mortgage if you pass away. This is crucial if your partner or other dependents rely on your income to help pay the mortgage repayments each month.
By having mortgage protection insurance in place, it can remove the worry of meeting those repayments. Mortgage insurance can help to leave your partner or dependents with a mortgage-free property, which could be a lifeline during an already difficult time.
2. You have different options to choose from
When it comes to mortgage protection insurance, you have two types of policy to choose from; decreasing term and level term. By understanding the two types, you can make a more informed decision on the most suitable policy for you.
Decreasing term life insurance is usually the most common, as it is designed to pay out what is left on a repayment mortgage. The pay-out amount decreases in line with the amount left on your mortgage, offering the right amount of financial support when it is needed.
Level term life insurance can also cover your outstanding mortgage. It is more suitable for an interest-only mortgage. Both decreasing and level term insurance will provide a lump sum pay-out to help your family cover the mortgage should the unexpected happen.
3. The pay-out may help to cover other lifestyle costs
If you choose to take out level term life insurance, your family may benefit from a lump sum pay-out that can help to cover the mortgage and other lifestyle expenses.
Depending on the amount of cover, level term life insurance may provide financial support for your family for living costs and other bills, as well as the mortgage. What’s more, you have the opportunity to review any existing policies you have, to make sure they are offering the most suitable protection for your circumstances.
4. It can be very affordable
Mortgage insurance, particularly decreasing term life insurance, is often thought of as the most cost-effective method of covering a repayment mortgage. This is because your repayment mortgage debt will continue to reduce as you pay it off. In line with this, the pay-out of your policy will also reduce as time goes on.
You may also be able to secure affordable life cover by comparing quotes. Consider the benefits of using an insurance broker, who can search the market for you in order to secure the most suitable policy at an affordable price.
5. You can take out a single or joint policy
There are many decisions to be made when taking out a life insurance policy, including taking out a single or joint policy for you and your partner. A joint policy will only pay out once, usually on the passing of the first policyholder, but it can be a cheaper option.
Two single policies can pay out for both deaths.
Consider that your mortgage only needs to be paid off once, so if you are taking out a policy solely to protect your mortgage, a joint policy is usually sufficient for a joint liability mortgage.