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Almost Half Of People With Mortgages Risk Losing Their Home

By: Dennis J Haggerty

In Britain 43 per cent of people do not have their mortgage covered by life insurance; this represents a massive jump since 2006.

With the recession biting and family budgets taking a hit, particularly when faced with redundancy, economies have had to be made. Recent research* reported in What Mortgage (3 Nov 2010) indicates many people have stopped paying their life insurance. This research suggests over 7.1 million people with a collective outstanding mortgage balance of 318 billion are putting their homes and loved ones at risk. The death of a 'breadwinner' in any family is a calamity. However, should this happen, not having life cover in place to at least pay off their mortgage can be little short of a financial disaster for their dependence.

In 2006 the uninsured total was 217 billion; however this has since increased by a massive 47 per cent and can only be explained by the disruption brought about by the recession. Ultimately, for those left with the debts to pay, selling their family home may be their only way out. Mortgage providers are accommodating up to a point, however, if the family cannot afford to make the mortgage repayments, they will be forced to sell or ultimately evicted.

On average, an individual with a mortgage but no life cover in force owes over 44,000. Of these 32% are 35 to 44 year olds and 34 per cent are age 45 to 54. Most people value the peace of mind offered by life insurance. Should the worst happen it should at least pay off their mortgage. If they can afford it, they will also take out enough cover to soften the financial blow for their loved ones. This is especially important for young families.

The worst aspect of life insurance is that it is easy to cancel and even easier to put off buying again with the thought of long forms to complete and higher premiums to pay. But who can blame someone receiving just 65.45 per week Jobseekers Allowance, choosing to put food on the table ahead of paying for their life cover?

It is a great shame that unemployment forces people to make these painful choices and creates a great deal of anguish for them in the struggle to provide for their family. Even if they can hang on to their home, it can take years to recover from unpaid bills and credit blacklisting. And to think all of this can be easily avoided by taking out Unemployment Insurance. This cover will pay the policyholder for up to a year if they are unable to work, so they can still meet their most important bills. Therefore mortgage repayments, household bills and life insurance premiums can be paid so the policyholder can concentrate on getting another job.

Of course this Unemployment Insurance (often called Lifestyle Protection or Income and Mortgage Payment Protection) can only be taken out by a person who is working and provided their employer is not about to make cut backs. Hence Council employees are not finding this type of cover easy to buy at an affordable price these days. A year ago, they could easily go on-line and buy Unemployment Insurance at highly competitive rates. For those currently in more secure employment, premiums can be as low as 20 to 40 per month for a typical 1000 per month benefit that is paid out if they are unable to work.

Potential redundancy is a fact of life for everyone working in Britain today. Unless an individual has several thousands of pounds in readily available savings, they must consider their options. Most people can find 5 to 10 per week for something they really need. Maintaining life insurance cover and keeping up with their other bills during a spell of unemployment means families with little saved can avoid incurring enormous debts. Unemployment Insurance offers an alternative to sacrificing credit worthiness or, potentially, a family's future financial security. With the Government scaling back State Benefits, there is a greater impetus than ever for people to make private provision to protect themselves and their family.

*Research undertaken by Sainsbury's Life Insurance 2010 and 2006.

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