Mortgage Life Insurance - Protecting your home

Article published on 21st May 2015

Have you considered how your family would repay your mortgage if you were to die?

Would your family need to move home or sell your property if they no longer had your income to pay the bills?

House

Mortgage Life Insurance will pay a lump sum to your family in the event of your death to pay off your mortgage. This type of Life Insurance can be setup to decrease in line with your Capital and Repayment mortgage or remain level if you have and Interest Only mortgage. A decreasing/mortgage Life Insurance will typically be the cheaper policy to apply for as the policy benefit reduces each year/month.

Mortgage Life Insurance can be available through a number of insurance providers, including but not limited to Aviva, Friends Life, Legal & General, Liverpool Victoria and VitalityLife. You can apply for this policy before or after your mortgage is arranged and you may find that the premiums are significantly cheaper than placing your Life Insurance with your mortgage provider.

You will typically apply for a Mortgage Life Insurance that covers the whole of the outstanding balance on your mortgage. However you may find that the covering the whole mortgage balance is not suitable for you, for example where medical underwriting has resulted in your policy premiums being increased past your affordable budget. We would recommend that in such situations you should apply for as much Life Insurance to cover as much as your mortgage as possible, based upon the maximum budget available to you.

When you apply for Mortgage Life Insurance you may wish to consider including Critical Illness Cover into the policy. Critical Illness Cover will pay a lump sum to you and your family if you fall seriously ill by a condition such as a heart attack, some forms of cancer or stroke to name but a few. This can be a highly beneficial addition to your insurance cover as it can provide the necessary funds to pay off your mortgage and take away that financial concern, at a time when you and your family should be focused upon your health and recuperation.

How much will the policy pay out?

Usually a Mortgage Life Insurance policy will be written to cover the full outstanding balance of your mortgage for the whole term. Depending upon your individual circumstances you may choose to cover part of your mortgage liability rather than the full amount and it is much better to have at least some of the mortgage balance covered than not at all.

Will the policy always payout the same amount regardless of when a claim is made?

For a Capital and Repayment mortgage you cover will typically reduce in line with your mortgage. For example you may start with a mortgage and Life Insurance policy with a value of £200,000 over 25 years. Roughly speaking when you are 20 years down the line and the outstanding balance of your mortgage is £20,000, your Life Insurance will also have reduced to around this figure.

You can also choose to purchase a Level Term Life Insurance policy which will see the sum assured remain the same throughout the term of your policy. If you have an Interest Only mortgage then you should always opt for a Level Term Life Insurance policy.

Will my health impact upon the policy acceptance terms?

It may do. Insurance providers regularly change their underwriting limits as to which health conditions can be accepted at standard terms or special terms for cover. Many medical conditions will have no impact upon the acceptance terms of your Mortgage Life Insurance which will mean that cover can be started quickly with the basic policy premium. Different insurance providers offer varied underwriting decisions for medical conditions and where one may place your policy as special terms (increased premiums) another may not. We would recommend that you speak with an insurance advisor before placing your Mortgage Life Insurance application to ensure that you approach the correct insurer for your circumstances.

What next?

You are welcome to call us for a quotation on 0808 1782777 or you can quote online.

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