Homeowners Not Taking Life Insurance Increases
It has been revealed by a recent survey that half of borrowers in the UK would be
unable to pay off their mortgage if their partner died, despite the availability of cheaper life insurance. It has been identified that nearly two-thirds of homeowners with mortgages have no life insurance, and those that do still fail to cover the complete cost of their home loan.The financial exposure in the event of a death raises concern that, apart from lack of concern and ignorance, increasing mortgage costs are pushing life insurance options out of most peoples personal finance budgets.
Research carried out by John Charcol concludes that 59 per cent of mortgaged homes have no life insurance at all, while 41 per cent that do, at least half have insufficient life insurance.
While the figures dont filter out the proportion of those without dependants or family for whom life insurance can be an unnecessary expense the implications can be devastating for the majority of borrowers. A typical scenario where a person who pays half or more of the mortgage dies whether they were your spouse, partner or even a friend joining forces with you to get on the property ladder a financial crisis can emerge just when money is likely to be the last thing on your mind.
As the life insurance industry has a financial interest in more borrowers taking out life insurance, well known consumer bodies are also becoming vocal in their concern at peoples reluctance to buy life insurance. January saw Which? Magazine move Life insurance products to the top of its priority list and warned that many of the population were being complacent. Buying life insurance with a mortgage makes us think about dying and, of course, thats still something none of us are particularly keen to contemplate, said a Which? Spokeswoman. Its always easy to think, OK Ill do it later, but if you have someone who depends on you financially, life insurance is a must. And the sooner you buy it, the cheaper it will be.
While the type of life insurance can differ, some policies e.g. whole of life insurance will include an element of investment, while decreasing term insurance will lower your payments as your mortgage reduces over time, but basic life insurance such as level term insurance is good enough in most cases.
It can also be a mistake to buy just enough life insurance to pay off your mortgage, making it a good idea that your other outgoings are covered during the short-term. For example, if you have increased your mortgage to cover the cost of renovations on your property, you must ensure that the level of your life insurance is raised to cover this.
Six ways to protect yourself against bad Life Insurance
Below are our six best tips to help you find the most appropriate life insurance policy for your situation.
Check if you already have life insurance through your work
It can be often cheaper for couples to have two separate policies rather than a joint policy. Some Joint Life insurance policies also only payout on the first death and not the second.
Ensure that the insurance company/broker you buy from is regulated by the FSA
Before committing to any policy, make sure your premiums are fixed throughout the term
Write your policy in trust for speedy payouts and it will also reduce the risk of relatives paying inheritance tax its also free!
Finally, make a will to ensure that your money from your policy goes where you really want it to.
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