Since having children, and more recently getting a new mortgage, there were some extremely difficult questions we needed to ask ourselves – most notably, what if the worst were to happen and you or your partner were no longer around?
When arranging our mortgage, we had to consider what would happen if the worst were to happen, and would we be able to:
- Afford the monthly mortgage repayments?
- Pay ongoing household bills?
(Water, gas, electricity, council tax)
- Maintain your current standard of living?
(Would you have to downsize, causing more family disruption)
- Would you need to return to work in order to meet living costs?
- Who would look after the children if you returned to work?
- Could you afford expensive childcare/nursery fees?
Taking out a life insurance policy can provide answers to all these tough questions, providing peace of mind for you and your loved ones.
For most, us included, a mortgage is the largest debt that we’ll ever incur. Therefore, it makes sense that we protect it. However, life insurance is not compulsory and so it was up to us to make decisions on term life insurance quotes, and provision for the future.
Like many others, we found life insurance and the industry jargon confusing, and had a few questions from our initial research:
- What is the difference between decreasing and level term cover?
- Will my policy definitely pay out at some point?
- Should I get a joint policy with my partner or two single policies?
Decreasing term vs level term?
When it comes to taking out life insurance to protect a family home you have two main options; decreasing term or level term cover.
Decreasing term cover, sometimes referred to as ‘mortgage life insurance‘, is the most common method of protecting your mortgage. It’s designed to help protect a repayment mortgage. The size of the pay out reduces over time in line with your mortgage debt. This means your loved ones could receive enough funds to clear the mortgage. However, there would not be funds left over to provide an inheritance or fund on-going family living costs.
In contrast, a level term policy pay out remains fixed throughout. So, regardless of whether you pass away at the start or the end of the policy, your beneficiaries would receive a fixed lump sum.
Both these options are term-based policies, which means cover only lasts for a set period and the policy has a defined start and end date. As a result, it’s possible to outlive your policy and not receive a benefit.
To fully protect your family home, it makes sense that your life insurance cover aligns with the length of your mortgage term.
Do you have children or dependents?
This was a big one for us. Having 4 children who rely on us financially, we wanted to make sure to take out an insurance policy that would protect them at any point, should it be needed. We also wanted to make sure that alongside the mortgage being taken care of, there was some additional money left to give them a good start in life.
Joint policy or two single policies?
We had the option of taking out either a joint policy, or two single policies. The main benefit of a joint policy was that we only paid one monthly premium, and it was cheaper overall.
However, it is important to understand that a joint policy only ever pays out once, (usually on first death). Thereafter the policy expires, leaving the remaining party to sort out a new policy. In contrast, if you take out two individual policies, although you’ll initially have to pay two monthly premiums, you’ll effectively double your level of protection and your loved ones could benefit from two separate pay outs.
Ultimately, there’s never a right or wrong way to protect your family and your home and it’s a case of finding the right life insurance to meet your specific needs. At a time when you may already be stressed about moving house, or busy with family, it is something that is so easy to overlook, but it is vital to have something in place for you and your family.
You can read more about our family, home and recent move on our Facebook page