When we help you secure a mortgage, we automatically talk to you about insurances to protect that mortgage, be that life insurance, critical illness or income protection. We want to help you make an informed choice as to how your mortgage would be repaid should you become unwell, or pass away.
If you’re purchasing a family home, for example, setting up some form of life insurance would be a good idea so that should you pass away*, your loved ones would be able to repay the mortgage, if they chose to, thus reducing potential financial strain. You don’t have to have life insurance when you take out a mortgage, but we do advise that you have something in place.
There are a number of different types of life insurance policies available and we’ll look at some of the main types that we can arrange below.
Decreasing life insurance
Decreasing life insurance is often used as a way to 'protect' a mortgage and is the most common insurance that we arrange for people. The cover amount decreases over time, broadly in line with the repayment of a mortgage or other long-term borrowing. Your monthly payments stay the same, unless you make changes to the cover and the policy pays out should you die or be diagnosed with a terminal illness*.
This is the most common form of life insurance that we arrange here at White Mortgages as it is simple and often the most cost effective way to ensure that your mortgage will be repaid in the event of your death*.
Level Term Life Insurance
Level Term Life Insurance does what it says on the tin. You choose an amount that you’d like to have insured, for example £200,000 and this amount stays the same throughout the duration of the policy. It’s worth bearing in mind that the policy will not increase in line with inflation, so the spending power of £200,000 in 15 years time may well be different to it’s spending power now. However there is a type of life insurance called Increasing Cover Life Insurance, which increases annually in line with the Consumer Price Index, with your premiums increasing to reflect this.
Family Income Benefit (FIB)
Family Income Benefit is an interesting type of life insurance. We all know that families can be expensive and there’s always a club or school dinner to pay for. This is where FIB comes into it’s own. It is designed to payout a regular monthly income, rather than a lump sum, in the event of the policy holder’s death or diagnosis of a terminal illness*.
FIB policies are often taken out out by those with children over a certain number of years, for example until the children have finished university. But it doesn’t just have to be used for those with families - perhaps it should be renamed “Ongoing Costs” Benefit to cover those bills that don’t stop when a loved one dies.
As we know, everything from the cost of butter to petrol is on the rise at the moment, with inflation sitting around the 8.7% mark**, we know that £100 today doesn’t get you as much as it did 6 months ago. With that in mind, with some insurers there is the option for your Family Income Benefit to be linked to inflation, so that you know that the payments made out to your loved ones do, in fact, cover what they need to.
Although it’s not a cheery thing to think about; being prepared for future events, like terminal illness and death, can make things a lot easier for your loved ones. It removes another level of stress and worry from those left behind & gives you peace of mind that you’re doing all that you can do to provide a more stable future for those you love.
It can sometimes feel as though these sorts of conversations are ones for the future, but if you start the conversation at a younger age, you may be likely to pay less in your premiums than if you wait until you’re older. Insurers are as risk adverse as the rest of us, they know that, statistically, younger, healthy people are less likely to claim than older people so the premiums can be cheaper.** That said, people of all ages do die!
If you’d like to discuss any of the types of insurance that we have talked about today, just give us a call or fill in the form below
*subject to terms and conditions of policy
** Accurate at the time of writing.