What Happens to Your Mortgage When Your Spouse Passes or Becomes Unable to Work?

A business accountant holds a miniature umbrella to shelter a paper family, house, and car, symbolising protection and insurance.

One of the biggest financial concerns couples have is determining how will they will be able to pay the mortgage should one of them pass away or become permanently incapacitated and their income is not available to help pay the mortgage.

The obvious answer to this question is taking out some sort of insurance to cover this situation. The two main insurances that people utilise in this scenario are life insurance and total and permanent disability (TPD) insurance. These type of insurances are usually attached to each other as one policy.

Life insurance covers your designated beneficiary should you pass away and allows them to have enough funds to be financially secure without you. The policies are usually quite simple as it covers a pretty cut and dried event.

TPD insurance covers you should you become totally and permanently disabled so you cannot work again. It provides a lump sum, like a life insurance policy, but it covers the situation where you have an accident, you are still alive, but you are unable to ever earn income again.

TPD policies can be vastly different, and each can have their own definition around permanent disability. It is vital that when looking to purchase or renewing your TPD policy you review this definition to ensure you fully understand what you are covered for. Some policies will cover you should you not be able to work in your existing occupation while others will not cover you if you are able to work in another profession, notwithstanding the other profession may be a lot lower paid. Care is needed here.

The level of cover needed is one of the biggest decisions in relation to these policies. Couples really need to consider what a particular policy offers and look to tailor the policy to suit their individual circumstances. A few factors to consider are listed below:

  • The level of liabilities that will need to be paid off once your spouse’s income is no longer available to meet the loan repayments?
  • How much will need to be invested, and deriving income, to cover living expenses into the future?
  • What liquid assets do you already have available to meet these liabilities or future living expenses?
  • What the plan is in relation to schooling or your children and how many years of education they have left, that need to be met?
  • In relation to TPD, there will be a need to take into account the need to fund medical expenses as well.

Should you need a review of your current insurances please contact your KSW Client Manager and they will be able to put in contact with S&W Wealth who will be able to do a review of your situation and look to put a plan together of the insurances that best fit your budget and needs.

Kreston Stanley Williamson

*Correct as of 18 November 2022

*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.

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