Getting a mortgage without life insurance is extremely difficult. Why? Because your loved ones are counting on you to protect them in case something happens to you. If you think about it, if your family ever needs to rely on you to provide financial support, wouldn't you want to be sure that they would have someone to turn to in the event of your passing or when you are no longer physically capable of doing so? Life insurance is a huge part of the financial planning process when getting a mortgage.
The first question you should ask yourself is, "Do I really need insurance?" After all, if you do not require life insurance for a mortgage, than you should also presume that you can obtain a mortgage without life insurance as well. All you require for a mortgage loan is mortgage insurance or property insurance and nothing else. Once you have agreed to the terms of the mortgage contract, the mortgage lender will take care of the insurance premium payments. So is there anything you need to do?
Not really. Your mortgage lender will generally allow you to choose which of the three coverages best suits your needs. The three primary policies are: the remaining mortgage balance, the face amount of your policy and the sum assured. Let's look at these more closely.
The remaining mortgage balance is basically the amount of money you owe at the time of the loan. For many people, this amount is quite small. It is for this reason that most people choose to either raise the level of their premiums in order to lower their cost of borrowing, or to take out a term life policy. You can choose the level term insurance cover that is right for you, by comparing the premiums to the interest-only mortgage. It may also help to look at your income and your financial situation to see whether a level term life policy or an interest-only mortgage is right for you.
If you are living for you child or another dependents, or if your income is going to drop, you may want to consider getting critical illness cover. Critical illness coverage pays off the outstanding mortgage when you become ill. The benefit of this type of cover is that it comes with a decreasing term. Meaning, the amount of money that you would receive from a critical illness cover once your child has passed is smaller than it would be if you never had any coverage at all. The amount that you pay into the policy should reflect this amount. A decreasing term life insurance cover makes sense if you do not anticipate having any children.
Most mortgages nowadays include a sum assured or a life insurance clause. The purpose of this clause is to protect the lender in case you are unable to earn money due to some reason. You are not required to take out a life insurance policy when taking out a mortgage. But if you decide to include one, you need to consider getting two separate life insurance policies: one for illness and another for critical illness.
Many people have mixed feelings about adding contents insurance to their mortgage payments. Some feel that it adds too much cost, while others feel that it is merely a legal requirement. Usually it is considered a legal requirement if you are taking out a second mortgage. But for most people it is worth it because it provides coverage should something happen to the property you are paying on.
In summary, the mortgage you choose should allow for you to reach the monthly payments comfortably. It is also important to compare quotes and see what you get with the best deal. Remember that it is not the cost alone that will determine your life insurance coverage needs. Coverage matters more than the cost. By all means, check out everything you can get your hands on before you make your final decision. Getting a good policy at the best price will allow you to protect your family's financial future.