Mortgage Life Insurance - Do you need it?
Life insurance is really simple - only really important if your death is
going to be an impact on someone else financially. If your death isn't going to
impact on anyone financially you probably don't need
mortgage life insurance.
If you're still reading, then you probably share one of these common reasons for
having life insurance...
You have debt, and don't want to leave this burden for your family.
You have a family who is dependant on you; in the event of your death you
want to provide for their living costs, education, and so on until they are
able to provide for themselves.
You don't want to leave funeral costs to family members.
How much to get? Again, it's simple. Life insurance will pay out a
lump sum if you die. You can choose the lump sum - so the amount of cover
that's right for you will depend on your circumstances - things like your
debt levels and number of dependants. For more about how to choose the right
level of cover please see our life insurance. Another option to
consider - take some Income or Mortgage
protection insurance quotes to ensure you have the full cover, to take care
of things if redundancy, sickness or illness strike, causing financial problems
for your family.
Term' or 'whole of life' cover?
One other life insurance option is
'whole of life' insurance: life insurance with an investment component -
kind of like having your life insurance and a savings vehicle wrapped into
one. The premiums for this are huge, part of them going to pay for the
insurance and part building up as savings. The idea is that your life
insurance builds up value over time - if you don't make a claim you have
savings that you can access. While we have heard of cases where this kind of
insurance is worth having, they really are very, very rare. So usually our
advice would be to keep your investments and insurance separate - there are
much better places to put your money.
'Stepped' or 'level' premiums?
With UK life insurance you'll often
have a choice of how your premium is structured. You'll be able to choose
between 'stepped' and 'level' cover. Level cover starts out more expensive,
but the price doesn't increase with age. Stepped cover starts out cheap, but
increases in price at a much faster rate. So as you might expect, in the
short term, stepped cover is cheaper; if you're going to have your cover in
place for the long term (like more than 8 years), level cover will probably
work out to be the much cheaper option.
Premium guarantee?
Another thing to think about is whether you'd like
a guaranteed premium. Usually premiums can change from year to year, but if
you like, you can choose to have a fixed premium (so the insurance company
can't raise it for a given period of time - for example 3, 5 or 10 years.).
You will pay a bit more in the short term - but some people do like the
budgeting certainty of a fixed premium.
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