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Warning for mortgage holders without life cover

Warning for mortgage holders without life cover

Category: Life insurance

Updated: 07/05/2014
First Published: 07/05/2014

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Becoming a mortgage holder is a huge responsibility, particularly when you consider how much debt you're taking on board. You need to take a long-term view to ensure you're prepared for every eventuality, and that's why investing in suitable life insurance is vital.

You just need to think about the potential consequences if the unforeseen were to happen to see how vital it can be. You could be at risk of losing your home if you were unable to work, and even more extreme would be leaving your partner with the burden of a debt they're unable to pay on their own. Doesn't it make sense to invest in suitable cover?

Hopefully, yes, but unfortunately it seems that not everyone is aware of the risks involved. Figures from Scottish Widows have in fact revealed a fall in the number of mortgage holders taking out life cover, with just 50% having a suitable policy.

This is a drop of 4% from last year when 54% held life insurance, while just 17% of mortgage holders have critical illness cover and only 7% hold income protection policies (both posting drops of 3% year-on-year, down from 20% and 10% respectively).

These are worrying figures, particularly when 19% of respondents said they didn't know if they'd be able to cover bills if they or their partner couldn't work, while 48% said their savings would only last for a couple of months at most.

A lot of respondents overestimated the amount of support they'd receive from their employer and the state too. Some 64% believed their employer will pay them either a full salary or a full salary followed by a partial salary if they were off work for an extended length of time, when in reality most people will only be eligible for Statutory Sick Pay (SSP) at £87.55 for up to 28 weeks. They may get Occupational Sick Pay from their work, a payment made over the level of SSP, but this entirely depends on the policy of their workplace.

So, consumers can't rely on other people to provide financial help should they be unable to work, and when you consider that household expenditure is only ever increasing – mortgage holders now spend an average of £1,393 each month on household costs, compared to £1,326 in 2013, and that's before the possibility of rate rises comes into play – it's even more important to be prepared.

Richard Jones, of Scottish Widows, commented on the findings: "Protecting a home is about protecting a way of life that encompasses family, community and often a business. With this in mind, the impact of losing a home could be even greater than we initially realise.

"Whilst affordability cannot be ignored, people with mortgages do need to review and develop a more robust plan to ensure they are protected should the unforeseen happen. It's all about making sure you have the right cover at the right time of your life, giving people the peace of mind that their families will be able to keep their home and be financially covered come what may."

Essentially, if you don't have suitable cover you're leaving yourself and your family financially exposed, and the drop in protection cover in the last year highlights the increasing number of mortgage holders that are putting themselves at risk.

It's important to not be one of them. Life insurance will of course be an additional outlay but it's a small price to pay to protect your family's future, and the likes of critical illness cover and income protection should never be underestimated either.

There are various different types of cover you can choose from depending on your circumstances and budget, but it all comes down to being prepared. You wouldn't want to run the risk of losing your home if the worst were to happen – life cover will protect your finances and your home in the event of incapacity, a serious illness, an accident or death – so make sure to compare the options and you can have the peace of mind necessary.

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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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