Life Cover
Protecting your mortgage payment in the event of death
If you are buying a property with your partner, spouse etc then each of you will be wholly responsible for the mortgage. This means that if one of you were to pass away then the surviving partner will have the burden of the entire mortgage over their head.
Obviously this puts a tremendous strain on the surviving partner's financial resources because where before it took two incomes to pay the mortgage and maintain your lifestyle now there is only one income.
Lenders unsympathetic to bereavement...
Unfortunately lenders are not sympathetic to surviving partners and are only concerned with receiving their mortgage payments on time, which means that if the mortgage payments are not kept up to date then the surviving partner will eventually be evicted or be forced to sell their home.
You may be buying the property on your own but may have family living in the property with you such as children or relatives. If you passed away, the chances are that the surviving family won't be able to keep up with the mortgage payments leading to eventual eviction or forced sale and potential homelessness.
Guaranteed way of paying off the mortgage...
Life cover provides a guaranteed way of preventing the home from being repossessed or the surviving partner/family being forced to sell the home. The way life cover works is that if you were to pass away then the whole mortgage will be paid off leaving the surviving partner/family completely mortgage free.
This can be a life saver especially at a time when your family will be coming to terms with their bereavement and mortgage payments may be the last things on their minds.
A few things to be aware of...
A couple of things to be aware of when taking out life cover. Make sure that the amount you're insured for know as "The sum assured" is for the full mortgage amount you're borrowing as well as any fees that you're adding onto the mortgage.
E.g. if you're buying a property for £200,000 putting down £20,000 and borrowing £180,000, and if you are adding a lender's arrangement fee of £499 (an admin fee that most lenders charge) on to the mortgage, you're total borrowing becomes £180,499. Your sum assured needs to be for £180,499 and this will be the amount that will be paid to clear off your mortgage if you were to pass away.
The second thing is that if you're taking out a capital & interest repayment mortgage then take out the life cover on a "Decreasing Term" basis. What this means is that the amount you're covered for reduces in line with the amount of capital you owe over time.
In a capital & interest mortgage, the mount you owe reduces slowly over time so that by the end of 25 years you will have paid off your mortgage completely. With Decreasing Term cover, the amount of cover you have will always be the same as your outstanding mortgage balance (how much you owe the lender) and this reduces over time in line with your outstanding balance.
If you're taking out an interest only mortgage then take out the life cover on a "Level Term" basis. Remember on an interest only mortgage you're only paying the interest on the amount you borrowed and so the amount you owe will remain the same over 25 years. By taking out Level Term cover, you're making sure that you are covered for the same amount as what you owe for the full 25 years.
For some friendly advice or to get a quote click here.