Mortgage life insurance
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A mortgage life insurance protects your mortgage payments should you pass away before paying it off.
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Learn how to save money on life insurance with our special guide...
What is mortgage life insurance?
As is a universally acknowledged fact, a house is arguably THE most expensive thing you’ll ever purchase in your life. Unless of course you’re extremely wealthy, in which case it’s more likely to be a Premier League football club and maybe the odd palace or three. Who knows?
What we do know however is that on top of being THE most expensive thing you’ll ever purchase in your life, the acquisition of your home is also amongst the most stressful experiences.
Every part of the property-acquiring journey can be peppered with anxiety, from locating (locating, locating) your dream home and securing it (as a result of an elaborate chain reaction), through to getting the green light from your mortgage provider and eventually arranging/overseeing subsequent removals. It kind of makes you wonder why we go to such great lengths to be honest, doesn’t it?
Having said that, we all need a roof over our heads and the security it brings with it, despite the unavoidable financial and emotional cost invested in the entire (and more often than not, long and drawn out) process .
It’s just what we aim to achieve as part and parcel of our lives. So while we are here – living our lives (and paying our mortgages off) – we need to ensure that everything remains in place, financially speaking, to keep up our previously agreed parts. Yes, we’re talking about mortgage life insurance.
Also referred to as mortgage protection (although not so commonly these days), mortgage life is there to safeguard homeowners’ mortgages. More pertinently, in the event of the policyholder (and homeowner’s) premature demise. If this tragic event should unfold while the mortgage life insurance was in full cycle, then rest in peace assured that the policy would pay-out a capital sum to the grieving party/beneficiary equivalent to the outstanding mortgage.
Further to what we touched on above, mortgage life insurance is a dedicated policy agreement which essentially pays off your mortgage should the policyholder die before the mortgage repayments are completed; thus making life in the aftermath of a bereavement that much less stressful in direct relation to the continued mortgage repayments which would automatically become the inadvertent responsibility of the deceased party’s spouse and/or dependants.
While also being known as a mortgage protection plan, mortgage life insurance is alternatively cited as an assurance policy. To simplify the ‘jargon’, you generally ‘insure’ something/product/commodity/thing/person against something that could POTENTIALLY happen, while conversely you might ‘assure’ something that will DEFINITELY happen in due course. Now, while nobody’s denying that death won’t happen, the crucial point here is whether or not it will happen before your mortgage is paid off in its entirety.
Also you’ll need to know that there are two types of life insurance which specifically apply to covering your mortgage, namely decreasing term life cover and level term life cover.
By far the most common type decreasing term cover, which also doubles as the most cost effective from the policyholder’s standpoint too. Effectively it clears precisely what remains to be paid on the mortgage when the policyholder dies.
Level term cover on the other hand pays out if the policyholder passes during a predetermined period of time.
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Do I need mortgage life insurance?
Although arranging a mortgage life insurance policy through a recognised provider isn’t compulsory, it’s certainly something that we would recommend to people who are either planning to get a mortgage or are already in the throes of paying off an existing one.
Committing yourself to such an on-going financial outlay for a good part of your adult life, it really does make sense to cover for any eventualities and unchartered twists and turns which life has a tendency to make without any forewarning.
But to be perfectly honest, we wouldn’t suggest you arrange mortgage life insurance protection if you are single and don’t have any dependents, as at the end of the day this policy is all about removing the burden of responsibility and accountability from your dependents after you’ve gone.
A mortgage life insurance policy is ALL about paying off your mortgage when you’re no longer here, so if there’s nobody you want to leave the property to, you don’t need it.
How much does mortgage life insurance cost?
This rather depends on the individual and, most importantly, the sum total of your mortgage.
Despite it sounding a tad patronising, we can’t impress enough upon you to ensure that the sum insured covers your mortgage. As obvious as that last sentence is, you’d be surprised to learn how many mortgage life insurance policyholders make that textbook error and find themselves with a shortfall later. Or at least their dependents do.
The golden rule is that when you take out a mortgage life insurance check/double check/triple check/get someone else to check that the sum is sufficient to pay-off your mortgage in the event of your death. So for example, if your 10-year mortgage agreement is for £180,000, then your mortgage life insurance policy needs to match this.
Be wary of doubling up and potentially paying for your mortgage life insurance twice, which could happen if you’re not extra vigilant. The reason being that you might already have a level term life insurance policy in your name, which will pay out a lump sum if you die within a pre-defined period of time. So don’t find yourself in the position of signing up for a dedicated mortgage life insurance package if you’ve already got a life insurance policy in place.
Also be aware that your mortgage life insurance could cost your loved ones dearly in the long run, by way of being liable for inheritance tax. To sidestep this, we suggest policyholders to write the policy in trust at the very juncture you instigate your dedicated mortgage life insurance policy. This way you avoid it instantaneously forming part of your perceived estate in the event of your death, with the proceeds going to the treasury. Furthermore, by following this simple advice you’ll effectively speed up the pay-out process too, so you end up with a win-win situation.
Finally, request guaranteed premiums when you’re negotiating on a mortgage life insurance policy, which is imperative for fixing the cost month on month from initiation.
You’ll be afforded two choices of premium, guaranteed or reviewable, but if you opt for the second your insurer could ramp up the monthly costs at a later date, in spite of offering preferential rates in the beginning.
Guaranteed premiums by contrast eradicate this possibility, as the insurer is duty-bound to never alter the set premium price for the full cycle of the plan.
What can I do to reduce the cost of mortgage life insurance?
You know what they say about a change being as good as a rest? Well, never has it been more true than in the arena of mortgage life insurance.
If you’ve had a policy up and running for a while now, the chances are you could be paying more than you need to on your premiums. Seriously. It’s not like your mortgage life insurance provider is going to give you a heads up should they think you can get the same deal elsewhere, courtesy of a competitor now is it?
Therefore it’s up to you to shop around and discover if there actually is a better deal somewhere new. What’s more, many policyholders simply went along with the policy terms their mortgage lender, bank or original insurance provider suggested from the outset. So savings can be made if you shop around and get quotes from different providers.
It also never harms your case to make yourself a far less risky proposition in the eyes of a mortgage life insurance provider. As ever, projecting a healthy lifestyle and not having any habits which are seen to challenge your life expectancy (like for example smoking and/or excessive drinking) are key to reducing the cost of a large percentage of insurance product premiums.
It proves you’re serious about living longer, which in turn means you’re less likely to die imminently, which realistically manifests itself in more competitively priced premiums in areas such as mortgage life insurance.
Also, don’t forget that joint cover on a mortgage life insurance policy could save you more money, as habitually they tend to be cheaper than two separate policies. Plus they’re a lot less stress-inducing than thrashing out the details of two single versions if you haven’t got any dependents to worry about.