Let’s be honest, it’s never easy to talk about dying.
The rational part of us knows we won’t live forever, and yet it isn’t easy to think about a time when we won’t be around.
Well that got cheery fast didn’t it?
Whether we allow ourselves to think about it or not, death is something we can’t avoid, no matter how much we dread the thought of leaving those we love behind. What we can plan for though is what happens to our estate (and those who depend on us) after we die, and that’s where life cover comes in.
Life cover that pays off your mortgage in the event of your death can provide a helping hand to those you leave behind. Plus, the earlier you take out this type of protection (and the healthier you are) the cheaper your policy premiums are likely to be.
It can be understandable to want to put off thinking about life cover until you’re older. After all, when you’re young, death can seem like it’s miles down the road; something to worry about in ten or twenty years’ time. The danger with waiting however is that you won’t be prepared should the worst happen, and that could put serious strain on the people who depend on you financially.
So, what life cover do I need if I have a mortgage?
Life cover that pays your mortgage in the event of your death typically falls into two types of policy:
- A decreasing term life insurance policy
- A level term insurance policy
Our Threshold protection team can guide you through the key differences and benefits of the two policies to determine which would be right for you.
A decreasing term policy pays out relative to your mortgage debt (so how much you receive depends on your remaining mortgage balance at the time you die). As the name suggests the sum assured decreases through the term.
Conversely, a level term insurance policy pays out a fixed lump sum during the mortgage term, irrespective of how much remains on the mortgage.
Which is better?
This really depends on your personal circumstances, and the type of mortgage you have. It’s probably something you need to decide with advice from one of our protection experts.
Decreasing term is ideally suited to providing cover for a capital repayment mortgage where the mortgage debt is repaid throughout the term.
Whereas, level term provides suitable protection for an interest only mortgage where the debt remains constant throughout the term.
Both options would ensure your surviving dependants are in a position to pay off the mortgage after you die.
Will there be tax to pay?
Not necessarily. If the policy is in joint names the sum assured will be paid to the surviving partner tax free. If however the policy is in a sole name the sum assured on death will form part of your estate value and may potentially be liable to Inheritance Tax. Your protection adviser will discuss whether you need to consider putting a policy in trust.
At Threshold, writing your life cover policy into trust is a service our protection team will provide to you at no extra charge. It’s just our way of ensuring that whomever you name as your beneficiary (the person you nominate to receive the insurance pay out) will receive the full amount in the event of your death.
Do I only need life cover if I have a joint mortgage?
You might think so, but even if you’re the sole person named on a mortgage your lender will still expect the mortgage to be repaid if you die, and that burden will fall to whoever survives you. If those people aren’t in a position to pay, the lender may repossess your home.
Of course, the property can be sold, allowing the mortgage to be repaid in full, but this might mean those loved ones living with you have to find somewhere else to live without your financial support.
What if I have children?
If you have dependants living at home who rely on your income then it’s natural to be concerned about their future wellbeing should you die. In instances such as this you may want to consider adding additional cover that provides a regular income to support your family until your children are of an age when they can support themselves using a Family Income Benefit policy.
This is slightly different to mortgage cover, where a lump sum is paid on claim. Instead, in the event of a claim the monies will be paid on a monthly basis, for the duration of the policy term, ensuring your family receives regular financial support after you’re gone.
Ready to talk about life cover?
Arranging life cover is your way of looking after those you love when you’re no longer around and it’s never too early to start. At Threshold, we have access to a wide range of life insurance products, and will be happy to use our knowledge and expertise to advise you.
Contact us to see how little life cover could cost you.