Is Mortgage Insurance Necessary?
21 Nov 2019
Life insurance, car insurance, contents insurance… is another insurance product really necessary?! Potentially, yes. Think about it - your mortgage is one of the most important expenses in your life and the one thing you really can’t afford to not be paying.
There’s a reason why mortgage insurance exists. Your mortgage is the key to the roof over your head and the place you and your family escape to when it’s time to relax. If that was taken away, it would have a pretty huge impact, right?
What is mortgage insurance?
When we refer to mortgage insurance, we’re referring to mortgage protection insurance. Mortgage protection insurance is essentially a type of life insurance that is designed to protect you and your home by covering the cost of the mortgage should the homeowner pass away.
This means that if you or your partner aren’t around anymore, the mortgage can be paid off and no one will be left to keep up repayments with one less income. The insurance policy lasts for the same length of your mortgage, often somewhere around 20 years.
When taking out mortgage insurance, you need to decide between a decreasing term or a level term policy. With a decreasing term policy the amount you can claim gradually decreases as you pay off your mortgage. By contrast - and as a more expensive option - a level term policy means that the payout amount will remain the same throughout, no matter how close you are to the end of your mortgage term. So, unless you have to claim pretty early on in your policy, you’ll likely have a portion of your payout leftover. This will go into your estate and be left to your family as a little extra help.
Who needs mortgage insurance?
Don’t be quick to assume that everyone with a mortgage needs mortgage protection insurance. That’s not strictly true. If you have a mortgage and you live alone, there’s probably no need to take out this product. If you were to pass away, your home could be sold to pay off what’s left of your mortgage and there’s no one that will be left with the burden of trying to keep up with the repayments.
If you live with someone else though and particularly if you have a young family, mortgage insurance could be invaluable. Can you imagine losing a partner, parent or important family member and then, on top of that having to move out of the family home? Dealing with a loss is difficult enough without throwing a relocation into the mix.
Are there any alternatives to mortgage insurance?
As mortgage protection insurance works in the same way as life insurance, you might already have sufficient cover if you have life insurance - it depends on how much your payout would be and what costs and outgoings you want it to cover. If you’ve got other debts that need paying off when you’re no longer around as well as a mortgage to pay off, your life insurance payout might not be enough to cover all bases. Mortgage protection insurance might be a good extra to take out alongside.
You could also look into family income benefit. This pays out a regular monthly income to your family when you pass away. This could be enough to cover the mortgage repayments, and possibly other bills too so that your family won’t feel the financial effects of one less income coming in.
We can offer you plenty of advice and quotes for mortgage protection insurance here at LifeSearch. We’ll help you decide whether it’s something worth your while, based on your individual circumstances and any other insurance you might already have.
Give us a call on 0800 316 7253 for free and friendly advice from our experts - it’s their job to make taking out insurance as simple as possible for you.
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