We buy houses to provide a home for our families.
We then work to maintain the mortgage to keep the home and a roof over our heads and this usually continues for about 25 years.
25 years is a long time and anything can happen.
Insurance exists to protect against things that may not happen but still could.
When protecting a debt the important facts to know are:
1/ What is the outstanding balance of the debt?
How much is left to pay off.
2/ What is the ‘term’ of the debt?
How many years before the debt is paid off.
3/ What are the repayment terms?
Will you be paying just the interest or the capital and the interest (such as a repayment mortgage) or is interest being ‘rolled up’ (added to the debt but not paid off).
Typically mortgages are either ‘Interest Only’ or ‘Repayment’.
With an Interest Only mortgage the balance of the debt stays the same over the whole term. An insurance policy that provides a ‘level’ amount of cover would be suitable to protect this type of arrangement.
A Repayment mortgage goes down over time and insurance that ‘decreases’ will typically provide adequate cover for this.
Couples can have ‘joint’ cover which means both people are covered in the same policy and if one dies the policy pays a claim, the mortgage can be repaid and the cover ceases.
Critical Illness Cover can also be added to life insurance so as to potentially repay the mortgage or provide a substantial lump sum in the event of a serious illness.
Policies can be placed in ‘Trust’ which is a free service offered by most insurance companies and allows a claim to be paid quickly and directly to the people it is intended to help.
The proceeds of a policy not placed in Trust will form part of a deceased persons estate and be administered through Probate or Intestacy Rules which can take months and sometimes years.
There is no question that it is important to make sure this type of cover is set up properly.
Contact us for advice.