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Under-35 and considering buying a home? Here’s how to save!

Mon, Dec 19, 2022 5:00 PM GMT

Cost-of-living crisis continues taking its toll on financial decisions

Under-35s are not hitting the typical life events that would prompt them to take out protection because of the impact of the cost-of-living crisis, according Vitality.

Research by the insurer predicts this will leave more young people unprotected as a result.

Vitality asked people under 35 how the cost-of-living crisis was impacting them. Almost a third (30%) said it has already stopped them from getting on the property ladder, while a further 20% said it will stop them buying a property. 

Buying a property is a usual catalyst for taking out protection, including life insurance, critical illness cover or income protection, to ensure the mortgage will still be paid in the event of death or illness.

Fewer people getting a foot on the property ladder looks likely to lead to less people taking out a policy to protect them and their families. 

The Vitality research also found of those who already had life insurance, one in five (19%) took it out when they purchased a property with a mortgage.

Yet it also found a third (35%) of UK adults under the age of 35 said the cost-of-living crisis either has or will prevent them from living away from their parents' house. This rose to two in five (41%) of those aged 18 to 24.

Another key prompt at which people consider their financial resilience, and how their loved ones might manage if something were to happen to them, is starting a family of their own.

But three in ten under-35s said the cost-of-living crisis will stop them from starting a family (28%).

Separate research by Starling Bank in September found under-35s were actually putting their way of living into reverse, with young adults more likely than over-55s to report "downsizing" their lifestyle or spending to deal with the cost-of-living crisis.

It found those under 35 are twice as likely to be anxious about budgets or be relying on credit to help with the cost of living than their older counterparts (55+). 

They are also significantly more likely to be cutting back on spending and around one in three (33%) are checking their bank balances daily.

"At Vitality our approach to insurance means our members get benefits in the form of rewards and incentives from day one of their policy, which we know appeals to clients, but also encourages them to actively engage with their policy, meaning they are less likely to cancel too."

Vitality added that it is another “key prompt” to people to consider their financial resilience and how their loved ones might manage if something were to happen to them.

Vitality strategic partnership director Andy Philo said: “With our research highlighting that the current economic environment could act as a catalyst for a widening protection gap for young people, it’s more important than ever that as an industry we offer real value from our protection products – and actively publicise them – to ensure people continue to take out protection to support them, their families and what matters most to them.”

Bearing this in mind, finding opportunities to cut costs is paramount in today’s tough landscape.  Mortgage protection insurance can be an attractive option for homeowners looking to protect their investment and keep family members from financial troubles. This type of insurance policy covers your remaining home loan balance if you die.

However, mortgage protection insurance, also known as mortgage life insurance, isn't right for everyone. Here's a closer look into what this insurance coverage can do and how to determine whether or not getting such a policy is right for you.

What Is Mortgage Protection Insurance? 

If you die before your mortgage is fully paid off, your heir or heirs will need to assume the payments if they want to keep the home. In the event they are unable to meet the payments, the loan will go into default. If it continues to go unpaid, the bank will foreclose and take possession of the property.

Mortgage protection insurance, or MPI, can prevent such an event. If you have this policy, the insurance company will typically pay the lender the remaining mortgage balance after your death. Some MPI policies will also pay out to the lender for a specific period of time if you become unemployed or disabled, so there is no interruption of payments.

"For a homeowner who is concerned about something happening to them and they have dependents, MPI can be beneficial," says Dianne Crosby, senior vice president of mortgage lending at Guaranteed Rate. "I got MPI for myself after I got divorced because I have three children. I didn't want to leave them with that burden. It gave me and them an extra layer of protection."

As the MPI policy holder, you would pay your premiums over a specific term. During that time, you are covered. The benefit from this kind of insurance is generally decreasing, meaning the possible payout goes down over time. As you pay off more of your mortgage, there is less loan for your insurance to cover.

What are the drawbacks of mortgage protection insurance?

Industry experts, however, also cited several reasons for opting out of this type of coverage, adding that taking out term life insurance is a better alternative. These reasons include:

1. Lack of flexibility

Mortgage life insurance policies do not provide the same flexibility that term life insurance coverage offers, the experts noted.

“Being able to cover mortgage payments is great, but you’re doing so at the expense of your family’s other debts and bills,” wrote Gambhir and Shoenthal.

“While the death benefit can remove the financial stress of paying a mortgage, your family could still be left with bills and other debt they can’t afford,” Marder added. “With a regular life insurance policy, your family can use the payout for the most pressing bills, whether that's mortgage payments, other loans or college tuition.”

2. Decreasing payout

As homeowners pay off their mortgage balance, a mortgage protection insurance’s payout declines, and with premiums staying the same, this means the policyholder may end up paying more for less coverage, according to Burgett.

“If you’re wondering whether you still have to pay the same premium every month for a smaller face value, yes, you do if it has level premiums,” she wrote. “That means the amount you pay every month does not change even if the value of the policy goes down.”

3. Higher premiums

Another disadvantage of taking out an MPI policy are the expensive premiums, which Burgett explained is the result of waiving medical examinations and skipping the underwriting process.

“Typically, the less an insurance company knows about you, the more risk they are taking on in insuring your life,” she wrote. “Because of this added risk, mortgage life insurance is usually going to be more expensive than a medically underwritten term life insurance policy.”

“A term life insurance policy can provide more bang for your buck than a mortgage life insurance policy,” Marder added. “A term policy allows you to choose your coverage amount and policy length. If you want to line up those options with your mortgage you can, but you’re not forced to.”

At Crossgrove & Company, we work with all carriers in Canada and spend the time to determine which life insurance policy is best for you.  Whether it be term, universal, or whole life insurance, we analyze each quote to bring you the best results within your budget. 

In addition, permanent policies can carry cash surrender values that exceed many investment options available, bringing clients a value-added element the product. 

Visit our website for more information, to get a quote, or contact us to have one of our experts scan the market for options and provide an analysis on which product(s) are optimal for you and your loved ones.


Reference: Insurance Business Mag, Professional Advisor, US News