Life insurance Updated:
The monthly mortgage payment will probably be one of your biggest outgoings, but what if the worst were to happen and you (or your partner) were unable to work? Trying to cover the household bills would no doubt be a struggle, which is why it's worrying that so few homeowners have suitable insurance in place.
Indeed, figures from Scottish Widows show that 50% of mortgage holders have no life cover in place whatsoever, something that could leave them financially exposed were the unforeseen to happen. Not only that, but just 20% have critical illness insurance, despite the financial hardship that could ensue if a member of the household was unable to work: 33% of respondents admitted that they'd be unable to live on a single income, with 43% of those saying that they'd resort to dipping into their savings.
However, even this may not be sufficient, with the same percentage (43%) saying that their savings wouldn't last for more than a couple of months, while a further 23% said that they could only afford to pay household bills for a maximum of three months. Another 23% said they'd be able to make just three monthly mortgage payments – and 15% admitted that they're not actually sure how long they'd be able to cope with their repayments.
Perhaps even more worrying was the fact that 15% don't even know how much they have saved, which means they could face an impossible task were their household to lose an income.
Don't automatically assume that the state would support you, either: 25% of mortgage holders who wouldn't be able to live on a single income said that they'd rely on state benefits to ensure they could manage financially, but as Scottish Widows points out, changes to Support for Mortgage Interest (the state-funded safety net in place for those unable to pay their mortgage) mean that people now have to wait 39 weeks before receiving this benefit instead of the previous 13.
This would clearly be too late for many households if they have no other form of financial protection, particularly if they could only survive on their savings for two months, which further highlights the importance of having a financial buffer in place.
"None of us want to think about the worst, but our findings show that there is an alarming number of mortgage holders who are putting themselves at significant risk by failing to arrange cover for the unexpected," said Johnny Timpson, protection specialist at Scottish Widows. "Many people believe that they'll be able to rely on the state if the unforeseen happens, but recent cuts to welfare benefits are exacerbating their vulnerability."
This is why it's so important to be prepared. Your financial buffer should at the very least include a decent savings pot – general consensus is that an emergency fund of between three and six months' worth of income is vital – but should also incorporate insurance that's specifically designed for this kind of situation.
Life cover may not be something you want to think about, but it could be vital to ensure the continued financial resilience of your family if the worst were to happen, while critical illness cover could be just as beneficial. Having a clear financial plan in place can help you protect your home against the unexpected – you wouldn't want an already stressful time to be made worse by the fear of losing the family home – and can give valuable peace of mind. After all, your home is your greatest financial investment, so doesn't it makes sense to protect it?
Compare life cover and income protection insurance.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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