Should I buy life insurance with my mortgage?

When looking to take out a mortgage one of the issues unlikely to be at the top of the list is to ensure that it is fully protected.

Should I buy life insurance with my mortgage?

The sole focus is collecting the keys from the agent and moving in, there seems to be lack of interest in ensuring that we can remain in the property should something unfortunate happen.

According to research from Moneywise in 2013 almost three quarters of adults in the UK do not have life cover yet almost two thirds had buildings and contents insurance. It just underlines that in the current climate of smartphones, tablets and games consoles that we are happy to insure gadgets against theft or breakage yet we don’t consider protecting ourselves.

I’ll be realistic, it is unlikely that anyone of us would be able to afford the amount required to be fully insured for every eventuality but we should all have some protection. I get asked what cover is the most important be that life cover, critical illness cover or income protection and I simply respond that if you were backing one horse out of three the chances of the one you’re backing winning is less than if you backed two or all three. You can tell I am no gambler but I would suggest it is best to have some cover in all areas as opposed to putting your eggs all in one basket.

Any good broker should be highlighting the need for protection and part of the process should be to investigate any existing plans already in place as well as cover provided by an employer as you shouldn’t be paying for something you already have.

For example, some employers in the event you are off work sick will pay six months full pay and six months half pay whilst some will only pay statutory sick pay which is currently only £86.70 per week for up to 28 weeks. Those most fortunate may receive an income until they either return to work or retire.

What I find most worrying is that many people do not know the cover they have from their employer; clearly with the latter example there is no need to consider any form of income protection but for those on statutory sick pay can you honestly say you’d be able to survive? Could you cover your mortgage, pay other bills and put food on the plate on an income of £86.70 per week? There is a huge need for income protection and importantly it doesn’t have to be too expensive.

If you’re single with no dependants and not concerned about leaving the property to someone mortgage free, life cover may not be an issue.

But for couples who are reliant on one income more than the other or for families, life cover is an issue and should be discussed. Would you like to know that your partner and/or your family will not have the concern of dealing with a mortgage in the event of your premature death? If you were the surviving partner I am sure you would not want to be concerned about the roof over your head at such a time.

Critical illness cover generally pays out a lump sum in the event of a major illness such as a heart attack, cancer or stroke. There are a number of illnesses that are covered but it is not necessarily cheap and the reason for that is you are much more likely to claim. There are also unknown benefits within many policies, for example children’s critical illness should your child become seriously ill and many parents claim on this benefit alone each year.

As you can see, different polices cover different eventualities. What I would suggest is that you set upon a monthly budget that you can afford and through discussion with your adviser agree an appropriate solution.

That may mean covering the mortgage with life cover in full and only 50% of the mortgage with critical illness cover. The important issue is that you’re protected and with annual reviews you can look to improve your cover over time.

Enter your e-mail address to receive updates straight to your inbox

My Newsletter

You can easily unsubscribe at any time by clicking on the unsubscribe links at the bottom of each of our emails
Categories: Analysis, Shares

About Author

Colin Payne

Colin Payne is a mortgage adviser at Chapelgate Associates