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Mortgage Term Life Insurance

What is Mortgage Life Insurance

It is an identical term for decreasing term life insurance, whereby the amount you are covered for (and your potential pay-out) will decrease over time in line with the decreasing level of mortgage debt you have left, based on the interest rates you pay.

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A mortgage is one of, if not the biggest financial commitment you may take in life. Although specialists may provide you with other options such as 100% mortgages, with most mortgage providers you will need to save for the initial mortgage deposit for the property and the monthly mortgage costs. Lots of saving and planning is needed for this huge life event.

Don’t risk something you’ve worked so hard to get. If you were to unexpectedly die, not only will your loved ones be distressed from losing you but they could have the added stress of paying off the mortgage. There is a way to help future proof any such financial scenarios.

It is an identical term for decreasing term life insurance, whereby the amount you are covered for (and your potential pay-out) will decrease over time in line with the decreasing level of mortgage debt you have left, based on the interest rates you pay.

The aim is to provide you with a cheaper alternative to level term cover, which offers the same pay-out no matter when the claim is made during the policy term.

As an example you could have a:

  • £200k, 25 year term repayment mortgage
  • You could cover this with a £200k, 25 year mortgage life insurance policy
  • If, after 10 years, there is £120k mortgage debt left (subject to interest rates) then the potential mortgage life cover pay-out will value at approximately £120k

Does it matter what type of mortgage I have?

The type of mortgage you have, e.g. fixed or tracker rate, affects how you pay the mortgage back rather than how much life insurance you should cover yourself with.

You should take a look at your mortgage debt, term, and mortgage type to try and cover yourself based on this risk and debt to choose the life insurance package that best suits your individual needs.

Can’t I just purchase Life Insurance during my mortgage process?

This is certainly an option. The process could vary between different financial professionals, but you may find that your solicitor discusses life insurance with you as a suitable way to financially protect your new investment.

It’s worth looking around to have a better understanding what other life insurance providers will cover, and the quality of service they may provide. For example, consider the cost, how easy it is for your loved ones to claim any potential pay-out, how long it takes to get covered etc.

Will this be enough cover?

The level of life cover you choose to cover mortgage debt is up to you. If you really want to minimise yourself against forms of future risk then critical illness insurance could also help support you.

If you were to become critically ill and forced to stop working for a period of time, could you continue paying off your mortgage? Critical illness could cover you in this situation, paying out a lump sum upon diagnosis. See our covered critical illnesses here.

I’m already covered, do I need mortgage Life Insurance?

If you already have life insurance, you will need to look at your debt and level of cover in order to answer this question. What we will say is that there are a few situations where more than one policy could come in handy and you may wish to consider this, for example:

  • Where life insurance provides lifestyle cover for your family, but the mortgage isn’t covered.
  • If you upgrade your home, and increase the level of your mortgage, then you need to consider increasing the value of your life cover to reflect the new debt level.
  • Where a second property is purchased and another life insurance policy can cover this additional mortgage debt.