Insurance is an important consideration for many homeowners. With so many different types of insurance out there, and a huge variety of policies to choose from, this is a big subject to unpack.
In this blog, we have focused on two specific types of insurance: Life Insurance and Mortgage Protection Insurance. It is critical that you consider these policies as a homeowner, including how they may be valuable in certain situations.
Read on for answers to crucial questions about these two types of insurance.
What is Life Insurance?
Life Insurance is a type of policy which means that a lump sum of money is paid out if a certain individual dies, in return for regular payments being made during their lifetime (or a single upfront payment). When an insured person died, the named beneficiaries on the Life Insurance policy will receive the lump sum.
There are two main types of life insurance: term life insurance policies which expire after a certain number of years, and permanent life insurance policies, which remain in place until the person dies, stops paying, or cancels the policy.
Many people take out life insurance if they consider themselves vulnerable to passing away in the next few years – either from a family history of certain conditions, or a dangerous job. All of these details must be accurately disclosed when a policy is taken out, as it impacts the offer you receive.
Do you need Life Insurance for a mortgage?
You are not legally obliged to take out Life Insurance to get a mortgage. However, many mortgage lenders consider it to be preferable, and therefore look more favourably upon people who have a Life Insurance policy in place.
It makes a lot of sense for many homeowners to take out life insurance protection. After all, if you are the primary money-earner in the family, then it puts a lot of pressure on your survivors if you pass away and they do not receive a lump cash payment from a life insurance policy, which helps them to pay off the mortgage. In many cases, this circumstance would force the family to downsize – which is why many people consider life insurance.
What is Mortgage Protection Insurance?
Mortgage Protection Insurance guarantees that your mortgage payments are made if you are out of work due to something outside of your control. The most common examples are an accident, sickness or unemployment.
The vast majority of mortgage protection insurance policies pay out for up to 12 months or until you return to the workplace – whichever comes sooner. You should also keep in mind that some providers have a limit of up to £2,000 per month, although this is not the case with all firms.
If you are successful with your insurance claim, you will have to wait anywhere between 30 to 180 days for the payment. You can sometimes opt to delay payments for even longer, in return for cheaper premium payments, but this can leave you in an awkward financial position.
Why do I need Mortgage Protection Insurance?
A mortgage is probably the most significant payment that anyone has to make in their lifetime. It is therefore a common concern for homeowners – and getting protection in the event of an unexpected problematic situation can be very valuable.
Many families also need Mortgage Protection Insurance if there is one sole money earner in their family. This leaves them increasingly vulnerable because if that person is unable to work, there are no other sources of income to help pay their mortgage.
In the worst-case scenario, Mortgage Protection Insurance can save you from losing your home.
What’s the Difference Between Life Insurance and Mortgage Protection Insurance?
Life Insurance pays out when you pass away, whereas Mortgage Protection Insurance only covers your mortgage payments for the period of time that you are out of work. Therefore, while both types of insurance can help you to make your mortgage payment, one is used for someone passing away, while the other is only used if you become temporarily unable to work.
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