The £36,000 mortgage risk you're ignoring
Discover how more than 40% of us could be putting our homes in jeopardy.
According to research from Sainsbury’s Finance, 41% of homeowners in the UK haven’t covered their mortgage payments with life insurance.
Collectively, this gap in cover equates to £245 billion worth of unprotected mortgage payments. Sainsbury’s also calculates that the average person with an unprotected mortgage is responsible for more than £36,000 worth of debt.
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According to the data, younger people are placing themselves at the greatest risk with 62% of mortgage holders between the ages of 18-24 not protecting their payments.
Some 38% of mortgage holders between the ages of 25 and 34 also haven’t taken out insurance against their payments.
A terrifying scenario
If you have a joint mortgage with your partner, he or she may be unable to cover mortgage repayments without your income. Should this happen, your dependents may be forced to sell the family home.
With a lump sum from your life insurance policy, however, your family could clear this outstanding mortgage balance and free themselves from debt. Of course, the amount of cover you need will depend on your outstanding mortgage balance.
Clear mortgage debts
If you would like to guarantee your family receives a payment regardless of how long you survive, whole-of-life cover pays out whether you live for 100 days or 100 years after taking out the policy.
Bear in mind, if the policy pays out a set amount upon your death, the value of your payout could be eroded by inflation over the years.
In contrast to whole-of-life cover, term insurance pays out if you die within a set period after taking out the policy.
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If your top priority for taking out life insurance is to clear your mortgage debt, you could consider decreasing term life insurance.
With this kind of policy, the size of your payout decreases over the term of the policy. Because your mortgage debt also decreases over time, the payout should be sufficient to cover the remaining balance if you die.
Note, you won’t receive a payout if you survive beyond the term of the policy, though you would have the peace of mind of knowing you were protected during the term of the policy.
What else is available?
Although clearing mortgage debt is often a key consideration when taking out life insurance, many of us have other concerns. For instance, you might want to help cover the cost of a child’s education or pay other debts such as loans.
If you’re keen to protect your family’s lifestyle should you pass away, you could opt for an increasing term policy, in which the amount of the payout rises every year.
Alternatively, family income benefit will provide your beneficiaries with regular annual tax-free payments for the term of the policy.
Who’ll pay your mortgage if you can’t work?
Mortgage protection payments insurance (MPPI) helps pay your mortgage if you suffer injuries, health problems or become unemployed.
If you’d struggle to meet your repayments following unexpected unemployment, you might want to consider MPPI.
Getting a mortgage can be a stressful time and is made even worse if you’re constantly bombarded with strange and unfamiliar terms – not knowing ERCs from equity release.
Test your knowledge of the housing market with our mortgage jargon quiz.
Many policies limit monthly payments to £1,500-£2,000 so those with a large mortgage balance may still face difficulty even with a policy.
The length of MPPI policies is typically between 12 and 24 months, which should provide you with enough time to find work. Longer periods are available – though this varies depending on your circumstances and provider.
**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**
Mortgages - YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE. FAILING TO ADHERE TO REPAYMENT TERMS MAY RESULT IN PENALTY CHARGES AND AFFECT YOUR CREDIT HISTORY. Rates may depend on your individual circumstances
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