Do Single People Need Life Insurance

Written by Steve Wentworth
Tuesday, 2nd November 2010

Question

I'm a single male / female and have purchased my own house on a mortgage, do I need life insurance, as if I die surely the house will just be sold and the mortgage lender will get their money back?

Answer

Although this seems quote logical there are a number of points to consider.

• The loan to value of your mortgage
• Critical illness cover
• Income protection
• Future plans

Loan to value

The loan to value is the amount of your mortgage compared with the value of the property. This is usually determined as a percentage rate, being the loan amount divided by property value. If the loan to value is high (in the 90% range) then there could be a serious risk of the property falling into negative equity. Negative equity is when the value of the property falls below the amount owed to the mortgage lender. The consequences of negative equity is that if a forced sale is called then the lender would sue for any amounts falling short. If the forced sale was due to your death then the lender could take legal action on your estate and next of kin. Adding to this if no Will is in place then the process could be drawn out in probate and the lender would be adding months and months of interest to be paid, your family could end up with a large bill.

Critical illness cover

Even if your on your own and either happy that your loan to value is sufficiently low, or you already have life insurance in place to cover a mortgage loan, one key area of protection is critical illness cover. This insurance will help you directly if you suffer one of a list of serious life changing illnesses, such as cancer, heart conditions, stroke or more. Its very easy to think that these things won't happen to a 20, 30 or 40 year old but research from Aviva insurance shows that there are more claims on critical illness cover from the 30-40 and 40-50 year old's than the 50+ age group. However, a critical illlness can effect anyone, CLIC Sargent is a charity caring from children who have suffered cancer.

Critical illness cover will provide you with a lump sum amount on diagnosis of a qualifying illness. This money can then be used to repay any mortgage debt or to improve your life to allow you to cope with this illness. Lets say for instance that you are involved in a road traffic accident and the consequences are that you lose a limb, obviously this is a life changing condition and could have an impact on your job, you may therefore be unable to work and then pay your mortgage payments. Or you may need to make some radical alterations to your home to be able to move around with a wheelchair. Critical illness cover could payout a lump sum amount to help you financially adapt to your new lifestyle.

Income Protection

Critical illness cover provides suitable protection if your diagnosed with one of a list of serious illnesses but what if you fall sick with a less serious illness, or are forced to go under a series of tests to identify a problem? You may even suffer from a disabling illness which prevents you from performing your work and earn a living. Income protection or sometimes called permanent health insurance is an insurance product which could replace your income for a long period of time whilst undergoing tests or recovering from an illness or even replace your income right up until retirement if your unable to work due to a deblitating illness. On making a claim, the insurance provider would pay a monthly income allowing you to maintain any payments on a mortgage, bills, food. So you can concentrate on making your recovery in good time without the financial strain.

Future plans

Of course, if your long term plans are to get married and start a family but your immediate situation is different then it is always worthwhile reviewing your situation regularly. However, please bare in mind that life insurance and critical illness cover premiums do increase the older a person is so obtaining this earlier in life may be cheaper.

About the author

Steve Wentworth formed his firm Wentworth Financial Services in November 2007 having been in the industry since November 2002. For the best critical illness cover or long term sickness insurance why not visit our website for a free quote.