Mortgage debt exceeds the average life insurance pay out
British homeowners are not taking out adequate levels of life insurance to cover their mortgage debt, according to research.
The average outstanding mortgage debt in the UK was estimated to be £119,937 in January 2017, according to The Money Charity.
But the average life insurance claim paid out in 2016 had a value of £75,000, figures from the Association of British Insurers (ABI) reveal.
That means homeowners are under-protecting themselves by an average of £44,937, just on mortgage debt alone.
Stephen Crosbie, protection director at Aegon UK, which carried out the analysis, said its own life protection customers were under-protecting themselves by more than £19,000 just on mortgage debt.
He said: “This life protection shortfall could leave loved ones facing a debt that may no longer be manageable on a single or no income.”
Many people take out life insurance when they buy a house to protect their loved ones and ensure mortgage costs can be covered if the worst should happen.
Crosbie suggests cover should be regularly reviewed to reflect any changes to levels of personal debt, including mortgages, and also to acknowledge any other key life events, like marriage, new jobs, children or divorce.
He said: “No matter the place or time, life insurance never makes for good conversation. No one wants to talk about dying. But we need to turn our perception of life insurance on its head as it’s not all about death, it’s also about providing financial security and peace of mind for those left behind. And it doesn’t have to be an expensive conversation. Life insurance can cost less than a bottle of wine a month.”
See YourMoney.com’s guide on Life insurance and critical illness cover for more information on both products.