Mortgage borrowers under-insured by an average £45k

Christina Hoghton
Written By:
Christina Hoghton

Mortgage debt exceeds the average life insurance pay out, according to Aegon, leaving borrowers under-insured.

It cited figures from The Money Charity, stating that the estimated average outstanding mortgage for the 11.1 million households with mortgage debt in the UK was £119,937 in January 2017.

Yet the latest figures from the Association of British Insurers (ABI) and Group Risk Development (GRiD) reported that life insurance claims paid out in 2016 had an average value of £75,000.

Stephen Crosbie, protection director at Aegon UK, said:This implies that people could be under-protecting themselves based on their mortgage debt alone by around £44,937. Our own claims experience in 2016, reinforces this trend and shows that our life protection customers could be under-protecting themselves by more than £19,000, based on their mortgage debt alone.

“This life protection shortfall could leave loved ones facing a debt that may no longer be manageable on a single or no income.

Review regularly

While buying a house tends to be a key trigger for people taking out protection policies, Aegon said that cover should be regularly reviewed to reflect any changes to levels of personal debt, including mortgages, and also to acknowledge any other key life events, like marriage, new jobs, children or divorce.

Crosbie adds: “No matter the place or time, life insurance never makes for good conversation. No one wants to talk about dying. But we need to turn our perception of life insurance on its head as it’s not all about death, it’s also about providing financial security and peace of mind for those left behind. And it doesn’t have to be an expensive conversation. Life insurance can cost less than a bottle of wine a month.”

Aegon has listed below the key things that people should consider when assessing their protection needs:

  • What’s your total monthly household expenditure?
  • How would you pay for everyday bills and essentials without the main income in the household?
  • Do you have any protection policies already in place?
  • What’s the difference between the amount of protection policies you have in place and all your monthly outgoings (including your mortgage or rent)?
  • How much life insurance do you really need?

In 2016 Aegon UK paid a total of £123.4 million in claims for life (including terminal illness), critical illness (CI) and income protection (IP), helping more than 1,300 families and businesses in 2016.