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Mortgage Life Insurance

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What is Mortgage Life Insurance?

Mortgage Life Insurance is designed to pay off your outstanding mortgage debt should you pass away.

When the policyholder dies, a lump sum will be paid out to the family which can be used to pay off the remainder of the mortgage.

If the primary earner of a household passes away, those they leave behind may find it difficult to cover their core expenses including monthly mortgage payments, utility bills and everyday living costs.

Mortgage Insurance can provide the financial support to allow your loved ones to stay in their home without the worry about making mortgage repayments should the worst happen and you pass away.

What Does Mortgage Life Insurance Cover?

Mortgage Life Insurance first and foremost covers the death of the policyholder by paying out a cash lump sum to clear the mortgage debt should they pass away.

Insurers usually include Terminal Illness Cover in policies, which provides you with a payout if you’re diagnosed with less than a year to live. This benefit is subject to certain terms and different insurers may have different definitions of a terminal illness.

What Doesn’t Mortgage Life Insurance Cover?

Most types of Life Insurance will typically cover almost any cause of death; however, there are a few common exclusions that you will find on many if not most Life Insurance policies. The most common exclusion is death by suicide within the first 12 months of the policy.

Other exclusions include if the death was in pursuit of a criminal activity or as a result of drug or alcohol misuse.

Including Critical Illness Cover

Most Life Insurance policies provide an option to include Critical Illness Insurance (not to be confused with Terminal Illness Cover) to protect you and your mortgage against the risk of serious illnesses such as:

  • Cancer
  • Heart Attacks
  • Strokes

Given the chance of suffering a serious illness is far higher than the risk of passing away, including an element of critical illness cover will increase the overall cost of your policy.

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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.

samatha haffenden-angear, independent protection expert at drewberry

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.

Age 25

Age 35

Age 45

1 in 33

1 in 15

1 in 6

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.
Life Expectancy CalculatorA bit morbid we know, but this tool works out the risk of you passing away based on ONS Life Expectancy Data
  • years
  • years
blue backgroundwoman with umbrella

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.

While Level Term Cover stays the same, Decreasing Term Cover decreases over time.

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.

Victoria Slade Independent Protection Expert at Drewberry

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.

rob harvey, head of protection advice at drewberry

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.

Age

🚭
🚬
Age 30

£6.77

£11.49

Age 40

£11.92

£22.64

Age 50

£27.71

£64.78

Best Mortgage Life Insurance Companies

aegon

Aegon

Aegon’s Scotland-based UK operations are wholly owned and operated by Dutch insurer Aegon N.V.

  • Minimum entry age: 18
  • Maximum entry age: 89
  • Minimum term: 1 year
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
AIG Insurance

AIG

US insurance giant American International Group, Inc. (AIG) was first founded in 1919 and since then has grown to operate on a global scale. It provides a range of protection products for both individuals and businesses.

  • Minimum entry age: 18
  • Maximum entry age: 88
  • Minimum term: 2 years
  • Maximum term: 70 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
aviva

Aviva

Aviva was founded in 1797, but the Aviva brand as it is today was formed in 2000 by the merger of Norwich Union and CGU PLC.

  • Minimum entry age: 18
  • Maximum entry age: 89
  • Minimum term: 1 year
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
guardian

Guardian

Guardian is a relaunched protection brand with a number of unique features to its policies.

  • Minimum entry age: 18
  • Maximum entry age: 65
  • Minimum term: 1 year (Level and Increasing Cover) / 5 years (Decreasing cover)
  • Maximum term: 72 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: £15 million
legal & general

Legal & General

L&G was formed as an insurance company for lawyers, by lawyers in 1836. It has since grown to become one of the country’s best-known financial services companies

  • Minimum entry age: 18
  • Maximum entry age: 77
  • Minimum term: 1 year (Level Cover) / 5 years (Decreasing cover)
  • Maximum term: 50 years (cover must end before an individual’s 90th birthday)
  • Maximum cover: Unlimited
liverpool victoria

Liverpool Victoria

LV is the UK’s largest friendly society, with more than 5.8 million customers, 1.1 million of whom are members.

  • Minimum entry age: 17
  • Maximum entry age: 79 (Level or Decreasing cover) / 59 (inflation-linked cover)
  • Minimum term: 5 years
  • Maximum term: 45 years
  • Maximum cover: Unlimited
royal london

Royal London

Royal London previously operated Scottish Provident and Bright Grey as separated brands providing Critical Illness Insurance under the Royal London umbrella. From 2016, both were merged into the main Royal London brand.

  • Minimum entry age: 18
  • Maximum entry age: 70
  • Minimum term: 1 year
  • Maximum term: 72 years
  • Maximum cover: Unlimited
scottish widows

Scottish Widows

Founded in 1812, Scottish Widows is today part of Lloyds Banking Group.

  • Minimum entry age: 18
  • Maximum entry age: 79 (must end before individual’s 90th birthday)
  • Minimum term: 1 year (Level and Increasing) / 3 years (Decreasing)
  • Maximum term: 72 years
  • Maximum cover: £25,000,000 (Level and Decreasing) / £15,000,000 (Increasing)
Vitality

Vitality

Vitality entered the UK market in 2007 with a joint venture with PruHealth and PruProtect, part of the Prudential Group. It has since bought out Prudential and is now branded solely as Vitality.

  • Minimum entry age: 16
  • Maximum entry age: 74 (cover must end before age 90)
  • Minimum term: 5 years
  • Maximum term: No maximum (cover must end before age 90)
  • Maximum cover: £20,000,000
zurich

Zurich

Zurich is a Swiss-based global insurance giant, operating in more than 170 countries. It employs around 55,000 employees worldwide, including 4,500 in the UK.

  • Minimum entry age: 16
  • Maximum entry age: 83 (must end before individual’s 90th birthday)
  • Minimum term: 1 year
  • Maximum term: 50 years
  • Maximum cover: £40 million

Get Expert Mortgage Life Insurance 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 2372 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.
Tom Conner Director at Drewberry

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

Extremely satisfied with the help and advice from Drew, since the beginning him understood what I was looking for and have the patience to help me out with all my questions and doubts. Didn’t tried to be push or annoying calling me all the time like so many did before. At the end we find the perfect medical policy for me and my daughter that covers everything that we need. I more than recommend them and if in the future I need something else for sure I will contact them again. Giving only 5 stars because I can’t give 6!!!!

Natasha Caversan Mucci
07/06/2019
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