Life Insurance is a financial investment that protects your loved ones in case you die, but what connection does it have with mortgages.
While buying a house is a big financial and emotional commitment, it also leaves you with a huge outstanding mortgage which can sometimes even be the 100% cost of the house. Life insurances ensure that the burden of this mortgage which can take up to 30 or even more years of payment does not fall on your loved ones in case anything happens to you before the entire cost of the house is paid off. The mortgage will be covered by the benefit received from the life insurance policy.
How does it work?
If a person has a joint mortgage and dies without life insurance in place to cover the mortgage then the bank will look to the surviving mortgage partner to repay the remainder of the debt. This might be a problem if the surviving partner can’t afford the repayment on his or her own and is then forced to sell the house to pay off the debt.
Mortgage life insurance coverage prevents this by paying off whatever remains of the mortgage debt if the client dies before the mortgage ends. In this case, the family is protected, and the client can feel safe in the knowledge that there is fewer things for the loved ones to worry about.
A building’s insurance amount should be related to the cost of rebuilding the property again in case the worst happens, rather not the market price or cost, the client purchased a new home for. This ensures that should anything happen, the insurer and/or the client will not owe an extreme amount of money.
What type of life insurance can you avail?
There are two factors that you have to consider while availing life insurance to cover your mortgage.
- Whether you are investing in your house independently or if you have a partner who has shared ownership of the house.
- If your concern is just the mortgage or you want to provide a little something for your loved ones apart from paying off the mortgage.
Depending on your choices you have the following options
- Single Life Insurance : Single life insurance has only one policyholder and the insurance pays out after his or her death after which it automatically terminates.
Depending on the cover you want there are two choices offered under single life insurance:
- Single Level Life Insurance
- Single Decreasing Life Insurance
- Joint Life Insurance : While most couples invest in a house together and the mortgage is shared by the partners, they are often advised to invest in joint life insurance that will pay the mortgage in case anything happens to either one of you.
Depending on the cover you want there are two choices offered under joint life insurance:
- Joint Level Life Insurance
- Joint Decreasing Life Insurance
Factors your insurance cost depend on
- Age – older clients are likely to pay more
- Medical history– clients with complicated medical history may have to pay more
- Level of cover– the cost of your insurance will vary depending on the level of cover you choose.
- Lifestyle– if you indulge in certain harmful habits like smoking etc.