Purchasing a house for the first time is likely to be one of your biggest ever financial commitments and can seem very daunting. Mortgage providers today will require that your new mortgage is protected by having a life insurance policy in place, at the very least they will require it to provide a lump sum payout should the worst happen to cover your outstanding mortgage repayments.
For first time purchasers of life insurance, this provides the ideal opportunity to look into an area of protection that they may have previously never seen as a necessity. While a new mortgage provider may look to provide guidelines on the minimum requirements in order to secure a mortgage it is highly recommended that you take this opportunity to review the market not just for the benefits of securing a property but also in the long term best interest of protecting you and your loved ones.
So what will a life insurance policy provide?
It will provide a cash lump sum if you or a loved one (if you take out a joint policy) should die during the term of the policy. Naturally, there are numerous options and alternatives to consider but some of the key questions you should look to ask when reviewing policies are how much will the policy payout, what is the length of the term, and who the payout will go to should you die. These are just a small selection of the key questions that can help guide your decisions. Ultimately as long as your policy meets the threshold of what the mortgage provider requires this will suffice to secure your property. However, by speaking to either your financial provider or insurance broker you can discover what the life insurance market can really provide rather than searching a comparison site to find the cheapest price.
What are the different policy life insurance types?
The most widely quoted policy types when looking to secure and protect a mortgage is a Term life insurance policy which comes in the form of ‘Level Term Life Insurance’ and ‘Decreasing Term Life Insurance’. However, you may also hear of other life insurance products during your search such as a whole of life policy and over 50’s policy but generally when looking to secure a mortgage a term policy is quite common for a mortgage, this isn’t to say you couldn’t consider another policy type.
With a term life insurance policy you choose a term and an amount of cover then pay a premium until the policy ends, as said there are two types. The first a level term life insurance policy would pay an amount chosen by you should you die during the term of the policy. The second a decreasing term life insurance policy will generally cost less than a level term policy due to the payout of the policy decreasing over time. You could even set a decreasing policy up to reduce the payment amounts at the same rate as the mortgage balance each month (dependent on provider) should you desire.
How do I know what policy is right for me?
While on the surface life insurance isn’t too complicated you need to ask yourself some questions in order to select the policy that is right for you. One of the first questions is are you looking for a policy that is temporary or permanent. For instance, if you did want a longterm commitment then a whole of life policy which could be in place for the next 30 years could be the choice for you. This could provide longterm security for the policy past when your mortgage repayments are set to complete.
What is the right payout for me?
Naturally the bigger the payout the bigger the premiums, so the question should be if the worst should happen do I want to just cover my mortgage or do I also want to protect my loved one’s way of life also. If you are just looking to secure the mortgage then a decreasing policy as outlined above may be the best choice for you. However, if you do want to protect your family from any ongoing living expenses, debts, one-off big lifetime payments i.e. children going to university or getting married etc then a policy that pays out more will likely be of greater benefit.
What are the living benefits?
A living benefit is when a policy may payout partially while you are still alive, for instance, if you were diagnosed with a terminal illness then you could receive varying degrees of the payout dependent on the severity of the condition and what has been stipulated in your policy. Access to such finance during this critical period could allow you to pay medical bills, make arrangements, and enjoy the final phase of your life, but ultimately it would provide options. Not all policies offer this so it is something to keep in mind when reviewing your options.
Which provider should I use?
Two main areas of concern when choosing a provider are customer service and provider stability. At Simply Cover we work with leading providers from across the UK to ensure you have access to policies from providers who have a long a secure history with no fears of them going into any financial difficulty in the short or longterm. Further to this, we work with companies that are proven at dealing with customers in some of the most challenging times they may ever face. Added to this is Simply Cover are also fully contactable at any point either in the short term after setting up a policy or much further into your policy to ensure your happiness with your provider.
Securing a policy for a mortgage can be a straightforward process that Simply Cover can assist you with and we can also help you to discover all the options open to you and your loved ones should you be looking to protect more than your first mortgage. Get in touch today to discover all of your options on a new life insurance policy.
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