More than half of homeowners don’t have enough life insurance to protect them

Published: June 28, 2024 by Jennifer Armstrong

Taking out a new mortgage is often a trigger for considering how you or your family would cope if you faced a financial shock. Yet, a report from Which? suggests that more than half of homeowners don’t have enough life insurance to protect them.

If you took out life insurance, it would pay a lump sum to your beneficiaries if you passed away during the term. It could provide essential financial support to your loved ones if they’re dependent on your income should the worst happen. The lump sum may allow your family to pay off outstanding mortgage debt or cover other living expenses which would mean they’re more financially secure.

Life insurance can be difficult to think about. However, it’s often an important step in creating long-term security for the people who matter to you most and offer peace of mind too.

The average household with dependents faces an almost £90,000 life insurance shortfall

Worryingly, the Which? data indicates that many households don’t have enough life insurance cover, and it could leave their families facing a shortfall if they pass away.

On average, households with dependents had an £89,800 shortfall. For homeowners with children, the gap was even larger at £194,200.

As a mortgage is often the largest expense your family will pay, a life insurance gap could potentially mean they lose their home or face financial stress if your income was lost.

As a result, taking some time to understand the provisions you already have in place, and whether it would provide enough to offer your family financial security could be vital.

Comparing your life insurance to your mortgage balance

Reviewing your outstanding mortgage balance may be a good place to start when you want to understand if your life insurance cover is enough. If you passed away now, would it provide your family with a means to clear the mortgage?

If providing a means to pay off outstanding mortgage debt is the main reason you want life insurance, cover with a decreasing term could be useful.

With decreasing term life insurance, the lump sum that would be paid out decreases over time to reflect the falling value of your mortgage as you make repayments. The key benefit with this option is that the monthly premiums you need to pay to maintain the cover are likely to be lower than if you opted for life insurance that didn’t decrease.

You should consider how quickly the value of the potential lump sum would fall. For instance, if it falls significantly faster than the amount you owe on your mortgage, it could create an unexpected shortfall.

Decreasing term life insurance often isn’t suitable if you have an interest-only mortgage, as your mortgage balance would stay the same throughout the term. As the payout falls it might not be enough to cover the outstanding debt.

While a mortgage is often a key trigger for considering your financial resilience and how life insurance can act as a safety net, there are other expenses you might want to factor in as well.

Considering your family’s needs could help you choose cover that’s right for you

To provide your family with long-term financial security, you may want to review areas beyond your mortgage too.

Depending on your family’s needs and other income sources, you might want to include day-to-day living costs so that a life insurance payout could replace your income. This option could help your family maintain their lifestyle while they’re dealing with grief and provide children with stability, such as by covering education fees to ensure they could remain at their current school.

Remember, your circumstances and lifestyle can change, so regularly reviewing your life insurance and considering if it still aligns with your needs could be a valuable step.

Contact us to talk about taking out appropriate financial protection

Contact us to talk about what level of life insurance would protect your family and other forms of financial protection that could offer you peace of mind too. We’ll help you understand how the right cover for you could pay off your mortgage and cover other living expenses should the worst happen.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.


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