Sometimes, the figures really do speak for themselves, especially in this instance where just two statistics suggest that the average homeowner in the UK has insufficient life insurance to cover their outstanding mortgage:
The two statistics suggest that there is, on average, a shortfall of more than £44,000 between your outstanding mortgage debt when you die and the life insurance payout you may receive as a result.
Why are the figures important?
The importance of these figures may be illustrated by the one of the principal reasons commonly given for arranging life insurance – namely, to ensure that surviving dependents have the mortgage on the family home safely covered and paid off if you die.
In other words, your life insurance is designed to ensure they still have a roof over their heads and do not have to sell up in order to meet the mortgage debt you have left.
The statistics suggest that, in many cases, the life insurance payout is unlikely to be sufficient to cover the outstanding mortgage debt.
Buying life insurance
Many homeowners may be relying on the condition stipulated by many mortgage lenders that the borrower takes out life insurance when arranging the home loan.
What might be overlooked is that the cover required by any mortgage lender may be insufficient to meet the outstanding debt when you die.
Nevertheless, to make things easier for the mortgage applicant, many lenders also sell life insurance at the time the mortgage application is approved. In the heat and excitement of buying a home, applicants may fail to compare life insurance policies on the market – there are many – and buy the cover offered by the mortgage lender.
Using an independent insurance broker
Given the importance of getting a realistic match between your mortgage debt and the amount of life insurance you buy, you might want to consult an experienced, specialist broker – such as ourselves here at Over50Choices.
The amount your designated beneficiaries receive on your death is determined by the amount of life insurance you purchase – but there is still wide variation in the market in the price of premiums to cover any given life cover sum. A broker may help you identify those competitively priced policies which offer the life cover to suit your needs and circumstances.
A broker may also help you decide between the many different types of life insurance available. A guide published by the Consumers’ Association’s Which? magazine, for instance, describes the main types of cover and describes how each one may serve different purposes, according to your personal circumstances.
A form of insurance typically bought by borrowers of a standard repayment mortgage is a decreasing term life insurance, where premiums are made somewhat cheaper because the assured benefits steadily decrease over the insurance term – in line with the decreasing mortgage debt over time.
Further reading: Guide to life cover