What is mortgage life insurance?
A mortgage will be one of your biggest outgoings each month. But how would your loved ones cope if they had to take over this after your death?
If you have a mortgage, you should consider a mortgage life insurance policy. It will provide you with peace of mind that your outstanding debts and other responsibilities are taken care of properly. Mortgage life insurance, or mortgage protection, is linked to the debt on your property. If you die before you pay off the mortgage, this type of insurance covers the loan.
Types of mortgage insurance
When it comes to mortgage protection, there are two types to choose from:
- Decreasing term cover
- Level term mortgage cover
A decreasing term cover policy is a type of coverage that pays the outstanding balance on a mortgage. As you pay your instalments each month on a repayment mortgage, the principal debt decreases. A decreasing term cover policy runs alongside this. So, should you die before paying off the mortgage, this type of insurance pays off what is left owing to the bank.
Level term cover pays a fixed amount regardless of what is on the mortgage. As the amount of payout stays the same, the monthly instalments tend to be more expensive. You may have to choose this type of insurance if you have an endowment mortgage, for example.
Whichever type of mortgage you have, you need to have an insurance policy that provides enough cover. If you have a £250,000 mortgage over 25 years, your plan should cover this.
Choosing mortgage insurance
When you take out a new mortgage, you may have a policy from the lender. If so, the mortgage is covered in the event of your death. However, you may not be getting the best deal. Taking out the policy from the lender only gives you a choice of their cover.
Taking out a policy at the time of your mortgage gave you what was available then. There may be a better deal out there for you now. When looking to change your mortgage life insurance, you will need to make sure the policy:
- Provides enough cover for the overall debt
- Covers any new health conditions you may have
Using a professional company that works with multiple insurance companies will help you compare deals. If you took out your policy a long time ago, things might have changed. If you were a smoker before and now you are not, you could get cheaper insurance. An independent advisor will be able to give impartial advice on the best mortgage life insurance policies.
Do I need mortgage life insurance?
It is not a legal requirement to have mortgage life insurance, but you will want to have this if you have dependents. The main reason people have this type of cover is to protect their spouse and children after their death. How will your household cope if you are not there to contribute to the mortgage payments?
The insurance will cover the balance on the mortgage, so your loved ones don’t have extra stress. It is already a testing time when someone passes away, so this insurance gives people one less concern.
Single or joint life policy?
When you look at insurance to cover a mortgage as a couple, you can choose a single policy for each person or a joint policy. There are pros and cons to both, so you should consider this.
Some of the benefits of a joint policy include:
- Cheaper than two single plans
- Less hassle to set up if you have no dependents
While this type of mortgage life insurance can be less expensive than taking out two separate policies, you will only get one payout. The payout on a joint policy usually happens on the death of the first policyholder. If you split from your partner further down the line, you will need to find a new plan.
Benefits of two single policies include:
- Each policy will pay so there are two payouts instead of one
- You won’t have to find a new plan if you split up
Taking out two single policies tends to be better for couples with dependents. If you have no children, you only need the insurance plan to pay out once. If you do have children, single policies will payout on the death of each policyholder. It will make sure any remaining dependents do not have the responsibility of the mortgage.
Finding the right policy
Depending on your situation, you will need a specific type of insurance. Whether you have children, the value of the property and other debts will all be considerations when looking at insurance.
Friends Capital works with the top insurance companies in the UK. By comparing the best mortgage life insurance deals on the market, we can find the right cover for you. Our expert advisors can provide you with impartial advice. You will receive all the information you need about insurance so you can make an informed choice. Contact us today.