What life insurance do I need for my mortgage?
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Is it better to get decreasing or level term policy? I have an interest-only mortgage, but I may get a remortgage.
financemum
1 year ago
Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
You need a level term insurance if your mortgage/remortgage are on interest-only bases. Why? Because the amount of the loan will remain at its start figure (unless you make overpayments), so, in order for your insurance to give you full cover, it needs to be level, for the full amount, and for the duration of your loan. If you increase your mortgage - for example you move - you can add extra cover by a suitable top-up or extra policy (subject to yourinsurability at that time).
If you change your loan to a repayment basis, simply reduce your existing cover to a reducing insurance for the remaining term of your loan - this can be done without further medical questions, because you will be reducing the risk to the insurance company.
You might choose to have a mortgage with is partly interest-only, and partly repayment (a 'part and part' mortgage). If so, you can have two separate policies, one matching the interest-only part, and the other matching the repayment part. However, it might be cheaper to take a single level policy for the full amount (and hence build up some over-insurance as time passes).
Ideally - and if not too expensive - try to cover your mortgage for critical illness cover as well, and if the mortgage is jointly held and depends upon a partner's income, then the policy should be on a 'joint life first death' basis.
As with all financial answers, this answer is a 'generalised' one which suits most people. However, your own situation may have some quirks that can influence the best solution for you; if you have any doubt, seek good advice.
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If you change your loan to a repayment basis, simply reduce your existing cover to a reducing insurance for the remaining term of your loan - this can be done without further medical questions, because you will be reducing the risk to the insurance company.
You might choose to have a mortgage with is partly interest-only, and partly repayment (a 'part and part' mortgage). If so, you can have two separate policies, one matching the interest-only part, and the other matching the repayment part. However, it might be cheaper to take a single level policy for the full amount (and hence build up some over-insurance as time passes).
Ideally - and if not too expensive - try to cover your mortgage for critical illness cover as well, and if the mortgage is jointly held and depends upon a partner's income, then the policy should be on a 'joint life first death' basis.
As with all financial answers, this answer is a 'generalised' one which suits most people. However, your own situation may have some quirks that can influence the best solution for you; if you have any doubt, seek good advice.
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
I agree with David's points above but would also add that there are occasions when a couple can arrange single life cover for each person for only a small increase in cost, for example as little as an extra £1-2 pm per £100 of premium.
why might you do this?
well, even after paying off your mortgage debt or the other reason you took the cover, your partner might still want the benefit of their own policy remaining in tact and this would pay double the sum of the mortgage but without doubling the cost.
clearly this wouldnt be the cheapest outcome as opposed to a joint life, first event policy but that is the benefit of seeking independent advice, you are able to weigh up all the possibilities in advance rather than wondering in the future if you could have done anything differently (and often its too late by then)
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why might you do this?
well, even after paying off your mortgage debt or the other reason you took the cover, your partner might still want the benefit of their own policy remaining in tact and this would pay double the sum of the mortgage but without doubling the cost.
clearly this wouldnt be the cheapest outcome as opposed to a joint life, first event policy but that is the benefit of seeking independent advice, you are able to weigh up all the possibilities in advance rather than wondering in the future if you could have done anything differently (and often its too late by then)
