Mortgage Life Insurance

Do I Need Life Insurance for a Mortgage?

Often mortgage brokers and lenders will say it’s a requirement for you to have Life Insurance to cover your mortgage, but in reality there’s no law that says it’s necessary.

Mortgage Life Insurance may not be required if:

• You live alone and don’t want to leave the property to anyone after your death, so you don’t mind it being sold to repay the outstanding debt
• You don’t have any dependents
• You live with someone who could take on the entire mortgage debt / monthly repayments by themselves should you pass away.

Yet while there are certain situations in which Mortgage Life Insurance may not be required, the reality is that most of us want to leave the property to someone else, have dependents living in the home or don’t have anyone else who could take on the entire mortgage debt themselves.

In such situations, we’d typically recommend a Life Insurance policy which at least covers the outstanding mortgage debt.

It provides the peace of mind and security that comes from knowing your family and your home are covered should the worst happen.

Samantha Haffenden-Angear
Independent Protection Expert at Drewberry

We’ve used our Life Expectancy Calculator – which is based on Office for National Statistics mortality data – to work out the risk of a healthy male of three different ages passing away during the life of a 25 year mortgage.

The results are laid out in the table below.

For many people, the risk of passing away during the life of a mortgage is higher than they might have thought.

• According to Drewberry’s Health and Protection Survey you’re not alone – the public believes their risk of death to be SIX TIMES lower than reality.
• What’s more, according to another Drewberry survey, a quarter of UK adults would have a mortgage of more than £100,000 to repay tomorrow if their income suddenly stopped, either through death or illness.

How Does Mortgage Life Cover Work?

The first thing to consider is how much cover you need. Typically, you’d align this with the outstanding mortgage debt you hold.

The type of mortgage you have will also impact the type of Mortgage Insurance you will need: either a Decreasing or Level Life Insurance policy.

Level Term Life Insurance

With Level Mortgage Life Insurance your insurance benefit will stay the same throughout the term of your policy and won’t change.

This type of Mortgage Insurance is designed to cover an interest-only mortgage. This is because the outstanding capital with these types of mortgages doesn’t decline over time.

Level Term Insurance provides exactly the same amount of cover at the end of your policy as you had at the beginning.

Decreasing Life Insurance

Decreasing Term Mortgage Life Insurance will see your cover reduce the longer you have it, eventually reaching a benefit of zero when the end of the policy’s term is reached.

This type of Life Insurance is best suited to cover a repayment mortgage loan. This is because the cover of the insurance policy decreases to match the fall in your mortgage debt.

This saves mortgage owners from having to pay for cover that they don’t need as premiums for decreasing insurance policies tend to be cheaper than they are for Level Term Mortgage Insurance.

However, these policies are set up to decline over your mortgage term and reach zero by the end, so there’ll be no cover once your mortgage is repaid.

If you take out Decreasing Life Insurance, ask your adviser for help ensuring the rate at which your level of cover decreases doesn’t exceed the rate at which your mortgage is decreasing, or you may face a shortfall.

Do I Need Joint Mortgage Life Insurance?

If you share a mortgage with your partner, you might consider a Joint Mortgage Life Insurance policy.

This type of insurance works very much in the same way as Mortgage Life Insurance, except that the policy will be based on two people and will pay out to the surviving partner if one partner dies.

Most Joint Life Insurance policies work on a ‘joint life, first death‘ basis, which means they will end after it has paid out for the death of the first partner.

If you would need a second payout after the first partner’s death, perhaps to provide financial stability for children even after the mortgage is paid off, then you may need to consider taking out two single policies instead of one joint policy.

This will ensure that any dependants or beneficiaries will receive payouts upon the death of both partners. The first would clear the mortgage, while the second could be used to maintain a standard of living.

Should I Include Critical Illness Cover?

By adding Critical Illness Insurance to your insurance policy, you will be able to claim if you’re diagnosed with a serious illness such as cancer, heart attack or a stroke as per the terms of your policy.

Some insurers can cover as many as 100 different medical conditions with this type of cover, although the average policy covers around 40. This said, there are policies that cover less than 10 critical illnesses, so it pays to read your policy’s terms and conditions carefully.

While it may seem like a good idea to add Critical Illness Insurance and secure a payout in the event of illness as well as death, it may not be the best approach for everyone.

One of the most notable issues with combined Life Insurance and Critical Illness Cover is that the policy will only pay out once for either critical illness or death. If you need to claim for a critical illness that pays out 100% of the benefit, you will be left without Life Cover.

If your only purpose for taking out the insurance policy is to pay off your mortgage, then it won’t be a problem that this kind of policy pays out once. However, if you’ll need Life Insurance after receiving a critical illness payout this could be problematic.

Another potential issue with Critical Illness Cover is that it will only cover you for critical illnesses as listed in the policy terms. Less serious illnesses won’t be covered, even if they stop you working – this might include a bad back, for instance.

What About Income Protection?

Income Protection is another form of sickness insurance that you can buy separately from Life Insurance.

While you can’t package it together with Life Insurance as you can Critical Illness Cover, it’s nonetheless a valuable benefit to consider.

Income Protection is designed to pay out for anything that medically prevents you from doing your job – the illness / injury doesn’t have to be critical as defined by the insurer’s terms.

It also pays out what some people may find a more manageable monthly income (a percentage of your pre-tax earnings) as opposed to the lump sum offered by Critical Illness Insurance.

When speaking to clients we often end up talking about Life Insurance and separate Income Protection rather than adding on Critical Illness Cover.

It can be more cost-effective and may offer a greater level of protection to ensure mortgage repayments can be met each month.

Victoria Slade
Independent Protection Expert at Drewberry

Guaranteed or Reviewable Premiums?

There are two types of premiums to choose from when you take out a policy:

• Guaranteed Premiums
  Consistent and stay the same throughout the term of your policy.
• Reviewable Premiums
  Reviewed on a regular basis by your insurer and will change depending on a range of different factors. This includes changes to your situation as well as changes to your insurer’s situation.

For example, with reviewable premiums, if your insurer doesn’t have a particularly successful investment year, they might increase your premiums. You might not know what you’ll pay from one year to the next.

For this reason we generally recommend you take out a policy with guaranteed premiums. While this may be more expensive at first, you’ll at least know what you’ll be paying month-on-month and year-on-year.

How Do I Make A Claim?

If the policyholder passes away, is diagnosed with a terminal illness, or is diagnosed with a critical illness (if you added critical illness cover to your policy), you can claim.

To do this, you will need a claim form from the insurer, as well as the original documents for your policy and a death certificate if you’re claiming for a death.

Obtaining a death certificate can be done by contacting either the General Register Office (England and Wales), the National Records of Scotland (Scotland), or NIDirect (Northern Ireland).

If you’re claiming for a critical or terminal illness, you’ll be asked to provide medical evidence of your diagnosis.

When you take out your insurance policy with us, we can support and help you through the process of claiming at such a difficult time.

Our financial advisers can ensure everything runs smoothly and that you have all of the right documentation prepared to make a claim.

Robert Harvey
Head of Protection Advice at Drewberry

Paying Off Your Mortgage

Providing the insurer receives all of the relevant documentation and the claim is accepted (the top insurers by claims paid had a successful claims rate of over 97% in 2017), you’ll most likely receive your benefit in a few weeks.

If you did not write your policy in trust, the payout will form part of the deceased person’s estate and it will be the responsibility of the estate’s executor to deliver the policy’s payout to the necessary persons.

You’ll likely have to wait for probate, which could take time; writing your policy into trust means this process is bypassed as the cash is paid directly to the trust on your death.

With the payout from your insurance policy, your loved ones will be able to pay off the rest of their mortgage debt all at once. That way they can stay in their home without having to worry that they might fall behind on mortgage payments without your help

How Much Does Mortgage Life Insurance Cost?

There are a range of factors that will influence the cost of a Mortgage Life Insurance policy. The cost of a policy will be different for different people and while we do have control over some cost factors, there are others that we cannot control:

• The value of your mortgage debt
• The type of Life Insurance you need (decreasing / level or guaranteed / reviewable premiums)
• Your age
• Your smoker status
• Your policy’s cease age
• Your medical history and current health (including your height and weight)
• Your family’s medical history.

In the below table, we’ve laid out the monthly cost of Life Insurance for a smoker and non-smoker of various ages.

They’re all looking to insure themselves for £250,000 of Decreasing Life Insurance to cover a repayment mortgage over 25 years and have no untoward medical history that would impact premiums.

The quotes shown represent the best Life Insurance quotes from across the entire UK market, as of April 8th, 2019.

Best Mortgage Life Insurance Companies

Get Mortgage Life Insurance Quotes & Expert Advice

Getting Life Insurance to protect a mortgage can be valuable if you have a family and a home that you are still paying off.

With this protection in place, you will be able to ensure that your loved ones can comfortably stay in their home should the worst happen and you pass away before clearing the mortgage debt.

Why Speak to Us…

We started Drewberry because we were tired of being treated like a number and not getting the service we all deserve when it comes to things as important as protecting our health and our finances. Below are just a few reasons why it makes sense to let us help.

• There is no fee for our service
• We are independent and impartial
  Drewberry isn’t tied to any insurance company, so we can provide completely impartial advice to make sure you get the most appropriate policy based solely on your needs.
• We’ve got bargaining power on our side
  This allows us to negotiate better premiums for you than you going direct yourself.
• You’ll speak to a dedicated expert from start to finish
  You will speak to a named expert with a direct telephone and email. No more automated machines and no more being sent from pillar to post – you’ll have someone to speak to who knows you.
• Benefit from our 5-star service
  We pride ourselves on providing a 5-star service, as can be seen from our 3900 and growing independent client reviews rating us at 4.92 / 5.
• Gain the protection of regulated advice
  You are protected. Where we provide a regulated advice service we are responsible for the policy we set-up for you. Doing it yourself or going direct to an insurer won’t provide this protection, so you won’t benefit from these securities.
• Claims support when you need it the most
  You have support should you need to make a claim. The most important thing when it comes to insurance is that claims are paid and quickly. We are here to support you during the claims process and make sure it’s as smooth and stress free as possible.

We will help you find and compare quotes and, should the time come where you need to claim, we’ll also help you get all of the necessary documentation in order.

If you need some help please don’t hesitate to pop us a call on 02084327333 or email help@drewberry.co.uk.

Tom Conner
Director at Drewberry