Mortgage Life Insurance

If you are a homeowner, then your mortgage repayments will undoubtedly be your biggest monthly expense, to which the majority of your income is contributed. If you, or the main breadwinner in your family, were to suffer an untimely death, then it seems logical to consider how your dependants would fare financially in your absence. If you are struggling to conceive how your dependants would manage to keep the roof over their heads without your earnings, then you should most certainly consider the acquisition of mortgage life assurance.

Tailored to paying off your mortgage with the minimum of hassle, mortgage life assurance can guarantee your family are able to maintain their current standard of living in your absence.

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How it works

What is Mortgage Life Insurance?

Mortgage Life Assurance is a policy guaranteed to resolve any outstanding mortgage payments in the case of a policyholder’s death. It provides a policyholder’s family with the security of knowing they will not suffer ongoing mortgage repayments in the event of their death.

How Does It Work?

Firstly, you will need to decide the time length of your cover, usually calculated in five year intervals. This would depend on a range of factors including your yearly income and health. The monthly premiums paid to reduce you mortgage debt can affect the value of your life assurance in varying ways (see below) There are three core types of mortgage life assurance: decreasing term, whole-of-life and level term:

Decreasing Term

This is a type of assurance which decreases in line with the amount you pay off on your mortgage during your life. This means that as you pay out more premiums according to the terms of your insurance, the amount your insurer will pay out on your death decreases.

As such, the sum paid out on your death is entirely based on the value of your mortgage at the time of enlistment into the policy, and the subsequent premiums paid. So if your mortgage stood at 200, 000 and you died before paying any premiums, your dependants would receive the £200, 000 in its entirety. However, if you passed away twenty years into your term, your policy would pay out the remainder to be paid on the mortgage, say £10,000 at that point. This form of life assurance is not appropriate for those with interest-only mortgages, as these candidates pay off the capital in a lump sum following the conclusion of their mortgage term, yet capital debt does not diminish over time.

Level Term Cover

This type of cover assures a fixed sum for a period which lasts for a set time frame. So, the amount you take out your policy for will be the amount you receive at whatever point you die during the agreed time period.

This type of life assurance is useful if you seek to leave your dependents with some extra cash upon your death. If you keep up with mortgage repayments, then your debt will be reduced, however the amount paid-out remains the same. However, monthly repayments are significant more costly than with other forms of life assurance. The lump sum received by your dependents on your death could aid with a glut of menial expenditures, such as household items, your child’s tuition fees and any recreational activities they would be in much need of, given the mourning period endured following your death.

Whole-Of-Life Assurance

A policy guaranteed to pay out whenever you die, whole-of-life is widely recognised as the most expensive form of cover. This is due to the unpredictable fluctuations in your premiums, which hinge on how successfully your money is invested. Far less people take out whole of life assurance, however there are plenty of reasons why this could be the best cover for you. Firstly, the most frequent deployment of this form of assurance is for the cover of funeral costs.

If you have accumulated notable levels of wealth and seek to bestow your hard-earned assets on your beneficiaries, then whole of life assurance can be a medium whereby you could foot your entire inheritance tax bill. In this manner, your dependents could receive what they are entitled to without having to combat a substantial tax bill.

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The Best Providers

Your advisor will compare quotes from the leading life insurance providers in order to get you the lowest quote possible, while still ensuring that your life policy meets all of your requirements.

Key factors to consider when purchasing Mortgage Life Assurance

Health

The healthier and younger you are, the better assurance policy you will likely receive. It is not worth fibbing about your health vices or any pre-existing conditions you might have or have suffered in the past, as if discovered, insurers can decide to not pay you out and legitimately back up their refusal.

Quit Smoking

Due to the evident health risks involved with smoking, non-smokers are afforded far cheaper mortgage life assurance. However, to qualify as a non-smoker in insurers’ eyes, you must not have smoked for one year.

Again, lying is not worth it, as after your autopsy is conducted on your death, and it was discovered you had been a smoker, your dependents will be the ones to miss out.

Specify The Beneficiaries

If you specify who the beneficiaries are to be in a deed, your money will be paid swiftly and directly to them. As such, your hard earned cash cannot be claimed by potential creditors, seeking to levy heft inheritance tax on your life’s earnings.

Single Policy

If you have a long-term partner, it can be tempting to purchase the usually more affordable couples’ policy. However, once one of you die, although the other person will get paid out, they will be left with no cover.

Additionally, in the unfortunate case of divorce, many couples have sought to end their couples’ policy and purchase two new ones. The financial hassle of this is self-explanatory, however a further consequence is that your new policy would be calculated on the basis of your age and health at the time of your divorce, which could’ve significantly deteriorated by that stage.

However, purchasing two single policies ensures cover for both of you, whilst offering twice the security to your dependents, as they will receive two pay outs following your respective deaths.

How do i purchase mortgage life Insurance

There are four main ways of purchasing Mortgage Life Assurance; these include using a discount broker, a comparison site, an insurer or a commission based broker.

Regardless of which of these mediums you use, it is vital to ensure that you receive sound financial advice and explore all the options available to you before committing to a policy. Remember, life assurance is an insatiably competitive market, and prices are constantly being driven down. Don’t settle for one of the first deals you see, as this will have an enduring impact on the amount of money saved over a lifetime. Fools rush in, and prudence is food for the thoughtful saver.

Extras to look out for

Critical illness Policy

Depending on your circumstances, extra mortgage life assurance cover could be a viable investment. For example, if you are prone to illness at a young age, or you’re slightly older and you recognise your body is taking its toll on your productivity, then critical illness cover could prove a worthy purchase.

This type of assurance guarantees a pay out if you are struck by a serious illness. All obvious conditions, such as heart-related conditions, strokes, cancers and blood diseases are usually covered. However, it is imperative that you check with your insurer which illnesses activate the critical illness cover for your own peace of mind. Moreover, it is worth scouring the terms and conditions of any life assurance policy, to ascertain what you are liable, and not liable, for.

Waiver of Premium

In order to gain this policy, you must specify your desire for it at the beginning of your assurance term.

If you’re unable to work due to debilitation, your insurer will continue to offer cover. However, it must be proved beyond question that you are in such a state of incapacitation that you are unable to work. This process usually takes a couple of weeks, following your request to active your waiver of premium.

 

Make sure, when purchasing Mortgage Life Assurance, that you educate yourself on the subject appropriately. This can be achieved through the seeking of expert, financial advice – this can be free or cost money. If it does cost, it could be worth it in the long term, as poor direction could have long-

term negative consequences for your life, especially in the matter of life assurance.

Strive to live healthily, as this will keep you in pocket during acquirement of life assurance, and compare as wide a range of quotes as possible, as the life assurance market is intensely competitive. Have a great life!