Having a life policy in place in case you die can help your family deal with your debts — such as mortgages and credit cards — if the worst happens to you.
It is common to take out a life insurance policy when taking a mortgage.
The policy will be typically set to pay a lump sum in the event of the policyholder's death. If you do not take out a policy and you pass away before the mortgage is paid off, the bank or building society can seek repayment of the loan from their late customer’s estate.
This may require the property to be sold to pay off the mortgage. If the property is sold in a state of negative equity the lender has the right to demand that the difference is also made up from the estate.
Debts such as unsecured loans and credit cards are treated in the same way as the mortgage, in that they must be paid off out of the deceased person’s estate. If you have borrowed a lot of money on this basis, you may consider taking out a life policy to ensure they can be repaid.
Student loans, on the other hand, are cancelled on the borrower’s death under current rules.
Generally, the younger you are, the lower the life premiums you face, because there is less risk of you dying.
A life insurance policy means that an inheritance can be left to children or grandchildren, for example, irrespective of whether there is any equity left in the home.
Regardless of your relationship status having life insurance can be a useful tool to protect your loved ones in the event of an emergency. Thus it gives you peace of mind knowing that they will have some financial support to protect them during their changed circumstances.
You don’t want to leave debts but in some cases, it can be unavoidable, so by having life insurance you have also taken some positive action to mitigate against the risk of leaving a debt.
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