With No Life Insurance, How Are Joint Mortgages Affected?
Several types of mortgages are available to UK residents, and a joint mortgage features the names of two people.
Whether someone buys property with a friend or partner, this investment should be protected.
The best life insurance provides the necessary security, preventing the other property owner from becoming solely responsible for repaying the mortgage balance if the other owner dies.
However, this important cover is often overlooked, leaving the surviving co-owner on the hook.
Life Insurance Available for Joint Mortgage Holders
Lenders do not usually require mortgage holders to purchase life insurance to protect property investments.
However, if the individual has dependents or is entering a joint mortgage, it may be wise to buy this cover. Joint mortgage life insurance will repay the balance of the mortgage if one property owner dies.
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It pays when the first death occurs, and then the policy ends. If one of the partners in a joint mortgage dies, the surviving partner will not have to worry about making mortgage payments because the payout from the life insurance policy will satisfy the loan.
Joint mortgage holders who consider this life insurance sometimes question whether each person should take an individual policy.
This is not required, and it may be financially smarter for only one of the mortgage holders to purchase the cover rather than for both partners to enter a joint insurance plan.
For example, if only one of the two people is employed and contributes to the mortgage payments, an individual life policy may be the best choice.
A joint or individual policy will pay out just one time but if each person purchases individual cover, two payouts may be made. It typically costs approximately ten percent more to purchase two individual life policies than to buy joint term life cover.
The claim paid when the policyholder dies may exceed the difference in premium, making two individual policies an economical option. If the partners prefer to buy a joint policy, a critical illness rider may be available to pay a benefit if either partner experiences a listed critical illness or serious injury.
A Joint Mortgage and No Life Insurance
When life insurance is not taken by one or both parties to a joint mortgage and one individual dies, the survivor is responsible for making the remaining mortgage payments.
This may put this person under financial stress, especially if both contributed a portion of their income to pay the mortgage. If the partners have children, it can become difficult for the surviving partner to pay the remaining family members’ mortgage and other living expenses.
Married and registered civil partners may qualify for a joint life insurance policy. This cover may also be available to couples who cohabitate and have a joint mortgage or other shared financial obligations. Our recently updated guide to life insurance plans for newlyweds might also interest you.
If two people have a joint mortgage, the premium for individual or joint life cover may be worth the expense.
Anyone who enters a joint mortgage agreement should consider how the other person will be affected financially if he or she dies and life insurance is not in force.
