The role of Life Insurance with a mortgage
When you first come to get a mortgage, very rarely does it cross your mind – what happens to the mortgage if I die – life insurance with a mortgage is furthest from your mind.
You are rightfully focused on all the logistical things you need to consider, and the fun aspects of picking out the furniture and thinking of the enjoyable times you will have in your new property. Being slapped with such a hard statement can seem jolting.
However, our core value is working with our clients until they are mortgage free. Ideally, that means we work with them over a number of years and refinance them on the best terms, reducing their costs and getting the mortgage paid off as early as we can.
If such an event happens, we feel we have a moral obligation to our clients to have this conversation as it isn’t right setting someone up with the largest financial commitment they are ever likely to take, without at least explaining the ‘what if’ consequences.
So here we break down some of the key things you need to think about and why they are important.
Why take out life insurance with a mortgage in the first place?
- For those around you. By its very nature, this isn’t something for you, it is something for those around you. What happens if you aren’t here? Would it adversely affect your partner/children/family? Very rarely is it never not the case that would happen. So really the main consideration is what happens to those closest to you? Do you really want them having financial stress on top of the emotional stress they will be feeling.
- Your plans fulfilled. The other main reason is to ensure that your plans are carried out. By our very nature, humans are extremely resourceful, so I am sure your family could ‘cope’ without you. But is that really want you want to happen? They cope? Surely it would be better that all the plans you make actually get carried out. Which in specific relation to a mortgage, is that you can ensure the debt is cleared, so no-one has to worry about making mortgage payments, or worse still, having to sell the property and go back to square one or a step back to something more modest. But also, do you have larger plans? Do you want to ensure your children go to the best school they can? Would you like your family to have financial freedom? With the correct planning, you can ensure this happens even if you aren’t here to see it. Which reminds me of one of my favourite phrases “wise people plant trees the shade of which they will never sit in”.
- Moreover, money gives you options. So conversely, no money means no options. Again, a very direct statement but it is true. Many people don’t understand money, which in our view is simply a tool to give you freedom to do the things you want to do. Life Insurance, correctly set up, gives your family options at a time of need. Sadly, the converse is true. If you die and your partner/family, can’t replace your income, or find the money needed to carry out your long term plans, they will be forced to change those plans and make compromises. That is why we think it is so important we address this issue head on, in an adult way, so that your family never has to experience this.
But I don’t think I need cover?
- Adequately planned? The only people that don’t need cover are those that have already adequately planned. If you already have life insurance which is set up to the correct value against the mortgage and life’s ongoing costs, then no, you do not need any more. We would never recommend that you take out cover for the sake of it. As long as the mortgage and family are protected, you have done the right thing.
- Work cover? I have cover through work so I don’t see the need of taking any more? Again, this can be sufficient, but just consider two key points;
- 1) generally this is a multiple of your basic salary only, no variable pay or benefits. So if you are using bonuses/commission etc to get the mortgage in the first place you may well find this level of cover is insufficient.
- 2) what if you change jobs? It may be that you work for a large firm now with lots of work related benefits, but what if you move to a smaller firm or even go self employed at a later date when you will have no cover at all?
- No-one really knows what the future holds, so that is why we often disregard work cover as it is so likely to change, so why not protect the mortgage now, and have that to cover your family? That is a very cost efficient way to set things up and ensure your future plans are met as outlined above.
- Additional assets? You may have assets that exceed the mortgage value, or have family that can step in and help. That may well be the case for some, but just think about – is that really what you want to happen? Surely you had plans for that money and do you really want to be a burden on your family. The very nature of insurance is that no-one wants it until they need it. It is there to preserve your other hard earned assets and to ensure your family do not need to use theirs. This preserves and creates family wealth, so surely that is a good thing?
As it has been said many times before – there are only 2 certainties in life, death and taxes – we can’t help you with the latter, but we can certainly help you with the former. I know that this is not a fun subject to think about and modern life is designed to make us feel comfortable and safe, so dealing with such a heavy topic can get a visceral reaction in some people.
But we always think of it this way – what happens if you don’t? What if you don’t protect your family, your mortgage etc, think about the impact on them and how that may make them feel. We have done this long enough to see many clients claim on these policies and them being so grateful that we did push them in this area as they literally don’t know what would have happened if they hadn’t.
So the above is really just an overview of why you should look at life insurance and what options you have. At the end of the day, you are an adult and you can make your own decisions.
Our role is always to explain the options you have, what the pros and cons are, so that you can make an informed decision that is correct for you. This is the only time in our work which is really is a matter of life and death! So while it is never enjoyable to think about such things, those who fail to plan, plan to fail.
We offer a free Will
That is also why we offer all of our clients a free Will whether you take a policy with us or not. The very least we can do is make sure that when our clients die, a small gift we can give their family is not having the additional burden of arranging their affairs as this is often how families end up falling out. If we can help even one family avoid that fate, it is worth our time and effort.
Should you wish to speak to one of the team on life insurance with a mortgage, or any mortgage or protection related matter, we would be delighted to help.
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Rose Capital Partners Limited is an appointed representative of PRIMIS Mortgage Network, a trading name of Advance Mortgage Funding Limited which is authorised and regulated by the Financial Conduct Authority.