Life Insurance
Life insurance, or life cover, as it is also known is available in several different forms
Life Insurance with Terminal Illness cover.
Without life insurance, what would your family do if the unexpected and unwanted were to happen? Unfortunately, mortgage lenders still require the mortgage to be paid. Should you be unable to do so, it could eventually mean losing the family home.
If you’re single, its not uncommon for your mortgage lender to approach the executors to your Will in the desire for payment. Therefore, and for example, your parents or immediate family could be facing more to deal with than mourning the loss of a loved one.
If the cost of the mortgage can’t be covered by the estate, or by life insurance policies, the lender can ask for the property to be sold in order to recoup the debt owed to them. However, many mortgage lenders will have their own bereavement team on hand to offer advice and assistance where possible.
Life insurance, or life cover, as it is also known is available in several different forms.
Decreasing Term.
A decreasing term insurance is designed to run alongside your repayment mortgage. For example, a mortgage for £250,000 over 25 years would have the same decreasing term assurance and amount. The insurance policy is designed to pay out an amount to clear your mortgage in the event of claim.
Currently any amounts paid are not subject to tax.
This life insurance type is normally the cheapest cover. However, the downside is, if you increase your mortgage or increase the mortgage term you will also need to change your insurance accordingly. Moreover, there would be no monies left after repaying the mortgage to leave a financial pot to assist your loved ones to ease the cost of living.
Importantly, as a person gets older the more likely a claim is going to be made. Therefore, changing the insurance later in life will also mean an increase in the monthly payment.
Level Term Assurance.
A level term life insurance policy differs to a decreasing life policy. With a level term policy you can insure yourself for a desired amount, this could be above your outstanding mortgage amount. For example you could take out £250,000 of cover for 25 years.
When running alongside a decreasing, or repayment mortgage, the mortgage decreases, the cover amount remains the same. Therefore, in the event of a claim there would be enough to clear the mortgage and leave a lump sum to your loved ones.
As with decreasing life insurance, currently, all claims are not subject to tax.
Due to the nature of term assurance over a decreasing policy the level term assurance is slightly more expensive.
However, should you ever increase your mortgage amount you would only need to take a top up amount. As, with the decreasing insurance, the older you are the more likely a claim will be made. Therefore the premiums are more expensive. This means that you would need a smaller amount of cover to top up your existing cover, therefore potentially reducing your monthly payments toward the insurance.
Family income benefit.
With Family income benefit, opposed to receiving a lump sum, you can opt to supply your loved ones with a monthly income. For example. £2,500 per month.
As with the other two types mentioned, any claims are not subject to tax.
What is Terminal Illness?
Terminal illness in essence is the diagnosis of something that will lead to death within 12 months of diagnosis. Terminal illness cover is usually a standard inclusion with life insurance. Any monies paid out can be used to start preparing for the inevitable, such as clearing outstanding debts, or mortgage.
Terminal illness is different to Critical Illness of which more information can be found here.
What life insurance could do for you depends largely on the financial arrangements you make for those you leave behind. For example, your partner could use the lump sum to pay off a debt such as a mortgage or use the money to provide an income.
LSR Mortgages does not deal directly with Mortgage Protection Insurance. Your details will be passed on to one of our trusted associates for specialist advice and applications.
