Source : The Telegraph

Buying a house is an exciting time, but it is also one of the biggest financial commitments you are likely to make. Mortgage repayments will probably take up a large proportion of your household income for many years to come.

Life insurance is a good way to make sure your family don’t need to worry about paying the mortgage if you, or your partner, dies before it’s paid off.

There are two main types of life insurance policies you might consider when taking out a mortgage.

Decreasing term life insurance

Also known as mortgage life insurance, the cover usually starts off at the same level as your mortgage and gradually reduces to zero over the term of the policy, which is what happens to your mortgage debt with a repayment mortgage. Because the life insurance cover reduces over the term of the policy, decreasing term insurance has lower premiums than an equivalent level term policy.
Level term life insurance

Level term life insurance pays out an agreed and fixed lump sum if you die during a set period which usually coincides with the length of your mortgage. Your family can use this money to pay off the mortgage and, If you choose to have more cover than your mortgage amount, have some extra money to meet any other financial obligations such as school fees or day-to-day living costs.

Level term insurance is usually a more appropriate cover for interest only mortgages as the amount you owe stays the same over the term of the mortgage because you are not repaying any of the capital.

Couldn’t my partner just sell the house if I die?

Yes. If property values have risen since buying the home, you or your partner could sell it to repay the mortgage debt if you or they couldn’t afford the repayments.

However, if property values have fallen the house may be worth less than the mortgage amount, potentially leaving them with a debt even after the house is sold. Also, if they are forced to sell the house quickly they may have to settle for a lower sale price.

More importantly though. What then? You or your partner have had to sell the family home. Where do they live now? Do you really want to leave your family in that situation for the sake of what may only be a few pounds a month for suitable life insurance cover which would pay off the mortgage and let them stay in the family home? When you think about it like that, most people would rather leave their families financially secure than searching for somewhere to live.

My partner is the breadwinner, so wouldn’t the mortgage be covered?

Even if your partner earns most, or all, of the household income, losing the person who provides the majority of the child and home care is going to have a big impact on their lives.

They may not be able to continue in their current occupation. They may have to pay for childcare, cleaning and gardening help. With all this to consider, they may struggle to afford to keep paying the mortgage and all the other day-to-day expenses on their own. When thinking about protecting your family, the extra cost of insuring both partners, regardless of who earns the most, is often a price worth paying to give you both peace of mind.

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