Mortgages have long been a wonderful way for people to be able to own their own homes. 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. 💷
There are a few different cover options so let’s take a look.
Decreasing term life cover
This is perhaps the most common type of insurance related to paying off debts, such as a 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 life cover.
It’s paid out over a fixed period of time and the money you receive will decrease over the term of the policy. So this type of cover keeps your monthly premiums really low and can be a great option to cover a debt (such as a mortgage). At Bequest, the premiums decrease at a rate of 8% per year, so check with your mortgage provider that it reduces at the same or faster rate as this cover to make sure it continues to cover your mortgage until the term is up.
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 you receive won’t decrease, the premiums you pay are likely going to be higher. Many people are happy to pay this as they know that a large fixed sum will be given, regardless of if or when you pass away over the course of the term.
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. Some mortgage companies may include this in your initial application when you buy the property. It could be, however, that cover is not enough and you want to have separate life insurance, unconnected from your mortgage.
If you’re in the process of obtaining a mortgage then it can be tempting to just go with what you’re given from your mortgage lender. But a better option is to shop 🛒 around to see if there is another solution out there which may be cheaper or provide you with more cover.
Where it may be better to pay twice is if you and your spouse have separate life policies. With two life policies, you not only receive two separate payouts but your policy keeps going if your spouse passes or if there is a split. To learn more about this, read our article “Why Everyone Should Have Single Life Insurance Policies”.
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, having a child or are no longer responsible for a house. You don't have to get life insurance to cover a mortgage, but it is a great idea.