Mortgage life insurance – is it right for you?

Mortgage life insurance is typically taken out to cover your mortgage in the event of your death. It means that there is a financial sum given to your family so that they pay off the mortgage and maintain their way of living.

Mortgage life insurance is also known as decreasing term life insurance, as it works in a similar way to your mortgage repayments. As the mortgage decreases, so does the amount of cover you have with your insurance provider. As a result, your life insurance premiums are often a little cheaper than other types of life insurance.

Don’t just settle for what your mortgage lender suggests

If you’ve been through the mortgage process before, you’ll be aware that often mortgage lenders offer their own life insurance. Don’t feel pressured to buy from them. The best way to find the right life insurance for you is to take the time to compare policies. It’s also important that you don’t pay it twice. If you’ve already got some sort of life insurance coverage, you won’t need to take out an additional policy if you’ve got enough to cover your mortgage.

When mortgage life insurance works best

Mortgage life insurance works best for people with a partner or dependants. This is because they want to ensure the mortgage is covered and that no one is left with the burden of debt or forced to sell their home.

There are other important aspects to consider, such as whether your parents are in a position to sell the property, or if there are any other loans or debts you need covering too.

The main reasons for getting mortgage life insurance are

  • So that your family members aren’t left with the mortgage debt
  • Your mortgage lender requires some sort of policy in place before you can buy the house.

Chances are, your family members will be able to sell the house if no one relies on living in that house. Mortgage life insurance is really only beneficial if you want to leave your home for someone without them struggling to pay the mortgage.

Getting enhanced cover with critical illness 

If you’re looking for a type of insurance policy that can help pay your mortgage when you’re ill, then critical illness might be the right type of policy. You can easily add it on to your life insurance policy. Critical illness cover provides you with a lump sum if you are diagnosed with a serious illness such as a stroke, heart attack or cancer. If significant time is needed off work, then this type of policy can help continue your mortgage payments.

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Mortgage life insurance – term life insurance

Mortgage life insurance is a type of term life insurance that ensures you receive a payment if you die within a specific time period. Typically, a mortgage is taken out for 25-30 years, so the term will reflect the mortgage period. Getting life insurance to cover this gives you term for children living at home to grow up or leave full-time education. It can also give you time to grow your assets, savings and pension.

In comparison, whole life insurance is more expensive and you may not need life insurance for your whole life.

Decreasing term insurance

Mortgage life insurance is often known as decreasing term insurance. This is because you’ll have the option for the cover amount to decrease in line with your mortgage payments. It can help save you money on your premiums if you opt for this type of cover.

Level term insurance

If you have additional debts or would like to leave some money for your family in addition to paying off the mortgage, then level term insurance may be more beneficial. It ensures that you can keep the level of cover over time and premiums remain the same.

You could also opt for increasing term insurance to counteract inflation. However, this can cause premiums to rise too.

Joint life insurance

If you’ve invested in a mortgage as a couple and have no dependants, you might be able to save money by getting joint life insurance. Although it is cheaper than paying for two separate policies, it does mean there is only one payment that comes out. However, it can help to cover the mortgage for one partner if one were to pass away.

Switch to improve costs

If you’ve already got life insurance with another provider, you may be able to compare prices to help cut costs. Taking out life insurance from your mortgage lender can mean you’re paying more than necessary. Going through an insurance broker or comparison site means you can compare policies without paying a fee. If you can save money, it might just be worth it to cancel your existing policy.

The cost of premiums is still based on age and health

It’s always worth shopping around for the right mortgage life insurance for you. Premiums are based on your age and health conditions as well as taking into consideration family history and lifestyle such as smoking or extreme sports.

The older you are, or if you have been diagnosed with health conditions can counteract any savings you might make. However, if you’ve quit smoking, then you may be able to get cheaper prices. If you’ve quit for over 12 months you can get a discount on your premiums.

Make sure you disclose health conditions

It’s important to be honest in your application for mortgage life insurance. Insurance providers can deny the claim if they think there are health conditions that were not declared. In addition to this, GP reports may be needed so they’ll find out. Each insurer has their own rules on health conditions, but by being honest you can get yourself a better deal by comparing policies.

Write your policy in a trust

If you write your mortgage life insurance policy into a trust it can help to avoid inheritance tax. Your family can, therefore, get more of the money paid out to them. It also helps to speed up the payout too.

For free advice on your mortgage life insurance, you can speak to one of our advisors. Get in touch today.

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