In our previous article, Is it worth getting income protection? The pros and cons, we highlighted the importance of Income Protection insurance. Now, we’ll turn our attention to life cover, another crucial aspect of financial protection.
Life cover, like all protection insurance, isn’t a legal requirement when taking out a mortgage. However, it can offer significant peace of mind, ensuring your loved ones are financially taken care of if you pass away.
Many people decide against getting life insurance due to rising living costs and the need to tighten their budget. Despite these financial concerns, it’s widely agreed that life insurance is a valuable way to safeguard your family’s future.
When considering the cost of life insurance, it’s important to note that premiums generally increase with age. This is because the older you are, the higher the likelihood of death during the policy term.
While many believe life insurance is primarily for the elderly or those with children, it’s actually valuable for people at all stages of life. Life insurance is available from age 18, with various options to suit different budgets.
A provider will take many other factors into account though, such as your health and smoker status. Here are some common types of life cover:
Level Term Cover
The sum assured remains the same throughout the term of the policy. This type of cover is useful for ensuring your mortgage is repaid in the event of death, with the possibility of a surplus for other expenses, such as funeral costs.
Decreasing Term Cover
This policy tracks your mortgage and pays out an amount that decreases over time. It includes an interest rate buffer to ensure there is always enough to cover the mortgage, though there may be no surplus for other expenses.
Increasing Term Cover
The policy value increases over time, potentially leaving more surplus than the mortgage amount, which can be used for additional expenses like funeral costs.
Whole of Life Policy
Not typically linked to a mortgage, this policy guarantees a fixed payout to beneficiaries, regardless of when you pass away.
Do you need life cover?
Life insurance ensures that your family will receive financial support during a difficult time, possibly paying off your mortgage and providing security. Even if you’re not the primary earner, your contribution is significant. Life insurance can cover costs such as childcare, which would otherwise need to be addressed financially.
Some employers offer a form of life insurance known as Death in Service benefit, typically a multiple of your annual salary. While this provides some income for your family if you pass away, it may not be enough to cover your mortgage. Additionally, if you change jobs, you may lose this coverage and your new employer may have a different policy.
If you are a sole applicant and have no partner or family, consider your wishes upon your death and whether life cover is necessary. While it’s unpleasant to think about, having life insurance can ease the financial burden on your loved ones during a significant and challenging time.
Placing your policy in trust allows you to nominate a beneficiary to receive funds directly, which can be a wise step in
estate planning.
Finding the right protection insurance can be challenging. It’s wise to consult with a Mortgage & Protection broker who can assess your unique circumstances and ensure you have the appropriate coverage to safeguard your financial future, should the worst happen.
Darren Polson is head of mortgage operations at Aberdein Considine
