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Life Insurance To Cover The Mortgage

Life Insurance

Mortgages have long been a wonderful way for people to be able to own their own home. However, they often represent well over half of your monthly bills and are a huge financial liability which often relies on two household incomes to pay it off.

In contrast, being mortgage-free can be a huge financial relief as it drastically cuts your monthly outgoings and completely removes the possibility of having your home repossessed. This is why when it comes to life insurance, covering the mortgage becomes very appealing. It's Best to know how much cover you need.

There are a few ways that this can be done with the options of getting out mortgage life insurance, obtaining a policy with your mortgage company or simply getting out a lump sum that is equal or greater than the value of your mortgage.

Decreasing term life cover

This is perhaps the most common type of insurance related to paying off your mortgage. This is where your cover will simply pay out whatever is remaining. Part of the reason it's so common is that it's often the cheapest form of mortgage life cover.

It's paid out over a fixed period of time and money you'd receive will decrease over the term of the policy as the amount left on your mortgage decreases. You have the peace of mind that the mortgage will always be covered without worrying about paying high premiums.

It's worth noting that this will only work on repayment mortgages as with interest-only, your capital debt is not reducing. You want to double-check the interest being charged to ensure that your cover doesn't fall more quickly than the mortgage.

Level term life insurance

This is where you pick the size of the payout your family would receive and the length of time that you're going to be covered for. You can set this to initially be able to cover your mortgage but as time passes, your family would be able to pay off the mortgage and have money left over.

As the amount of money that you receive won't decrease, the premiums that you pay are going to be higher. Many people are happy to pay this as they know that a large fixed sum will be given, regardless of when you die over the course of the term.

This type of cover also means that you'd be able to cover an interest-only mortgage. If you can afford the increased premiums then this can be a wonderful option but if not, decreasing life term cover could well be the best option.

Don't pay twice

Before diving into any life cover for your mortgage, it's a good idea to check whether you are already going to be covered. Plenty of mortgage companies will try and include this in your initial application when you bought the property. It could be, however, that you think that cover is insufficient and you want to have separate life insurance, unconnected from your mortgage.

If you're in the process of obtaining a mortgage then it's always tempting to just go with what you're given from your mortgage lender. A better option is to always shop around to see if there is going to be another solution out there which may be cheaper or provide you with more cover.

There is a situation where it may be a better idea to pay twice and that is if you and your spouse have separate life policies. If you have a joint policy then there will only be one payout on the death of the first policyholder and also it may need to be cancelled if you split up. Also, the surviving spouse may need to obtain a new policy which may be significantly more expensive.

With two life policies, you get two separate payouts which means that your policy remains intact if your spouse dies. You can make this unconnected to the mortgage then you have more flexibility and also don't have to worry about cancelling a policy if you split up.

Look for flexibility

Life can change often and it's a great idea to look for a policy that is able to adapt to your life. This could perhaps be if you are obtaining another mortgage or perhaps you've had to sell your house and are no longer responsible for one.

At Bequest, they offer plenty of flexibility in their life cover options and this includes having a simple 'Pay off mortgage' option in their life insurance policy which will simply pay off the mortgage if you are looking for nothing else, but just that.

You can also include the mortgage with anything else you would want to be able to pay for such as replacing income, debts or tuition fees. It allows you to have a choice of exactly what is covered which can make your life a lot easier.

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