Life Insurance: To keep or to cancel?

dunstonh

grumbler wrote:

Usually you owe bank less than the full value of the hause (exclusion: negative equity). If you die relatives (or bank) can sell the house. This will be enough to pay off the mortgage. And relatives will get the rest of money. The same final as you were renting house and did not have life insurance.
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The property will either be sold or repossessed. If repossessed, the value will be lower than if sold. Ignoring that for now, when the house is sold and debt cleared, where do the family live then? They will have little or no capital. Possibly no income which would prevent them from getting another mortgage and probably prevent them from renting (at least anywhere decent).

Life cover is there to cover a financial need. Taking out a mortgage does not guarantee that there is a financial need for life cover but when you have a family, chances are that it does.

lisyloo

From the start I new that this sounds unusual and will cause controversy. However, I still do not see any real arguments against this point.

If you are single then in my opinion there is no NEED to have life insurance (although you might want it).

If you are part of a couple then you might find it difficult to maintain your current rent/mortgage on one salary.
I would suggest that it is financially and emotionally easier to "up sticks" from a rental property than it is from a house that you own.

You can debate the emotional side if you want but it is definitely a fact that the transactional costs of moving home are higher if you are an owner rather than a renter (stamp duty, estate agents etc).
Some people may prefer to avoid selling their mortgaged property whereas renters might not mind so much moving to a smaller rental.

But it's all a matter of choice.

grumbler

dunstonh wrote:

...where do the family live then? They will have little or no capital. Possibly no income which would prevent them from getting another mortgage and probably prevent them from renting (at least anywhere decent).

The same if you lived with family in rented accomodation without life insurance...

Life cover is there to cover a financial need. Taking out a mortgage does not guarantee that there is a financial need for life cover but when you have a family, chances are that it does.

YES and YES. And this has nothing to do with mortgage.

grumbler

lisyloo wrote:

You can debate the emotional side if you want but it is definitely a fact that the transactional costs of moving home are higher if you are an owner rather than a renter (stamp duty, estate agents etc).

However we usually insure decreasing ammount of the mortgage but not the cost of moving home that is considerably lower. Why?

lisyloo

The same if you lived with family in rented accomodation without life insurance...

I agree.
I think the difference is that people taking on a large financial commitment tend to think about the issues of death, sickness and redundancy.
Those in rented accomodation perhaps don't think about this so much (perhaps because they don't feel the same kind of "millstone" feeling).
I would regard this as a mistake on the part of the renters who may find it difficult to manage after a death, rather than a problem for people with mortgages who are quite correct to asses the risks.

YES and YES. And this has nothing to do with mortgage.

I agree.
It's just that a mortgage is a big commitment so it's a time when people think about the issues. It's also common for lenders/brokers to try and sell people policies which they don't get the chance to do with renters.

However we usually insure decreasing ammount of the mortgage but not the cost of moving home that is considerably lower. Why?

Because most people want to stay in their home rather than move, so that's the thing that they insure.
The point about getting insurance is usually to maintain a current lifestyle without the income of the dead person.
If you were prepared to make drastic lifestyle changes (like moving to a smaller property) then there is no need for insurance.
Fact is that most people want to stay in their family home.

dunstonh

I think the point here is that life assurance is not compulsary. You could almost say that the provider has a duty of care to point out that life cover should be taken (where needed). No doubt at some point, someone that didnt get told about it would complain and get their complaint upheld (at least thats they way its trending now. Damned if you do, damned if you dont). However, in reality, we know its a marketing reason that life cover is mentioned.

That still doesn't take away from the fact that if you rent or borrow and have someone that will be financially worse off in the event of your death, life cover is desirable.

As lisyloo says, it just seems to be talked about, correctly IMO, when mortgages are arranged and not when people rent.