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In Short, its not compulsory to take out life insurance for a mortgage. However that doesn't mean that you shouldn't take it out. Covering your mortgage debt with life insurance is probably one of the biggest reasons people take out life cover. A mortgage loan is for most people the biggest debt you will ever have. So in the event of your death, you want to make sure this debt is not left to your family.
There are two different types of life insurance for mortgages that you will want to consider:
Decreasing Term Mortgage Life Insurance: This is a life insurance policy designed to be taken out only when your mortgage is on a repayment basis. A repayment mortgage is a standard type of loan where you pay it off over time. Therefore as the debt decreases, so will the need for life insurance. A decreasing term life insurance is the cheapest way of covering a mortgage due to the sum assured decreasing over time. Hence the risk of a big pay out is less. Feel free to try our decreasing term mortgage calculator to find out how much cover you may need.
Level Term Life Insurance: This is normally taken out to cover an interest only mortgage. With an interest only mortgage the debt stays the same which means any life insurance policy taken out to cover the mortgage must also remain at the same level. Level term life insurance is always more expensive due to the level of debt covered remaining high into older age. Many people will still consider taking out level term cover even with a repayment mortgage.
Are you looking to find out more about mortgage life insurance? Do you want to know what it entails and why it is a sound investment? Here at Discount Life Cover, we understand how important it is to be able to cover your debts should something happen. So, if you’re searching for advice, you’ve come to the right place.
As a homeowner, you have big debts that stay with you for decades. Yes, a mortgage is a massive commitment, and it isn’t cheap. As a result, it’s essential to have a backup plan in case the worst-case scenario becomes a reality. Saving up for a rainy day is a good option, as is taking out a low-interest loan, but what if someone else would pick up the cheque?
With life insurance for a mortgage, this is what happens should the unthinkable happen and you pass away, leaving your family stranded with your arrears.
What Is Mortgage Life Insurance?
Also known as decreasing term life insurance, mortgage life insurance is a type of cover that property owners can use to cover their mortgage in case of their untimely death. With this safety net, you never have to worry about your loved ones struggling for money again. Instead, the insurance company steps in and pays the amount owed, giving your family one less thing to worry about.
How Does It Work?
When you purchase a property, the bank will try and sell you mortgage insurance cover. It isn’t a legal requirement, but many buyers opt for it anyway. The reason is straightforward: the amount you pay decreases over time. That’s down to the fact that the amount you are covered for also reduces. After all, your mortgage won’t stay the same for 25 to 20 years.
Therefore, it’s an excellent investment early on, when the cost of your mortgage is high. Further down the line, after the total owed decreases, you can decide to cancel the policy if you believe you are in the clear. Of course, you can alter your coverage, too. That way, your premiums are lower, but you still have coverage just in case.
Simply put, you choose the cover you need and for how long you need it, which means you receive extra flexibility. The majority of insurance policies are set and don’t offer the same type of flexibility.
What About Illnesses?
You want to ensure that you are covered if you receive bad news about an illness, too. Typically, a mortgage life insurance policy will include coverage concerning terminal diseases. For example, you might be able to claim if your life expectancy is less than 12 months within the duration of the policy.
However, it’s worth noting that every insurer is different. Therefore, it’s vital to check the limitations before investing. That way, you are guaranteed peace of mind because you don’t have to fret about your loved one’s future.
What’s Included And What’s Excluded?
Inclusions and exclusions are never set in stone due to the nature of the insurance industry. Still, as a rule, the following are almost always included within a mortgage life insurance policy:
- Death or diagnosed terminal illness: the latter is if you have a life expectancy of 12 months or less within the length of the policy
- The amount of payable: you choose the cover you need and how long you need it for
- Guaranteed premiums: they won’t change unless you make changes to the policy.
- Guaranteed premiums: Free add-ons: the majority of insurance companies will include life cover or accidental death
Here’s what isn’t covered:
- Suicide: if you are adjudged to have taken your life, within reason, then an insurer will void the policy
- An undefined terminal illness: a terminal disease has to fit the insurer’s definition
- Critical illness: this is an add-on that you need to pay extra for
- Unpaid premiums: if you don’t keep up with your payments, the contract will be voided
Please read the terms and conditions or speak to an advisor if you are unsure.
Do I Need Life Insurance For A Mortgage?
No. It’s not illegal to secure a mortgage if you don’t have a form of life insurance. With that in mind, it’s essential to shop around for the best deals and not be pressured into buying the first policy you find.
However, whether your application is accepted is down to the lender’s discretion. As a result, it might be stipulated that you need to purchase mortgage life insurance beforehand. If this is the case, applicants should read the Ts & Cs carefully.
Usually, a bank can’t make you buy their in-house policy. As long as it’s life insurance with a licenced lender, you won’t be exempt from a mortgage policy. Again, this means there are more options at your disposal if you want to research who has the best service.
The Things You Need To Consider
Mortgage life cover could be the perfect solution for you and your family. After all, it’s not uncommon for homeowners to take out level term life insurance and pay more than necessary to cover a mortgage. With mortgage life insurance, the falling premiums are in line with what you owe the lender. Of course, there are factors to consider to ensure that you get the best possible deal for your future:
Changes To Mortgage
Your cover only applies to your mortgage as it is now. If there are any alterations, you’ll have to modify your insurance to make sure that the value of your property is covered.
The amount payable will only cover your mortgage. Anything else, such as credit card arrears, isn’t applicable and your family will be liable. A fixed-term policy, although more expensive, would leave them a nest egg for other debts and emergencies.
The rate on your mortgage shouldn’t be higher than the one agreed on with your insurer. Otherwise, the policy won’t cover the full amount. Always keep an eye on interest rates for inflation.
Discount Life Cover
At Discount Life Cover, we aim to provide you with peace of mind so that your future is secure. Therefore, the mortgage life insurance policies that we find for you are market leaders.
To find out more, don’t hesitate to contact us now and speak to a knowledgeable and dedicated advisor.
Discount Life Insurance…Why Use Us
We are an online advice service and as such have little overheads which enables us to give away more commission enabling us to me extremely competitive on price.
Having said all this, life insurance is not always about price and there are differences in the types of cover offered by providers. So we also provide an “advised sale” which means that we take on responsibility to make sure the policy you take is the right one and the most suitable for your circumstances.