Level Term Mortgage Life Insurance

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21-04-2021

Level Term Mortgage Life Insurance pays out a cash lump sum to pay off your mortgage should you pass away.

The amount insured remains fixed – or ‘level’ – over time. This means it’s particularly suited to protecting an interest-only mortgage, where the outstanding capital balance doesn’t fall over time.

Another use may be for family protection, as the sum assured doesn’t diminish with time, providing your loved ones with a consistent amount of cover over the life of the policy.

Mortgage Life Insurance provides you with peace of mind knowing your loved ones and home will both be financially secure should the worst happen.
Opt to include Critical Illness Cover to protect yourself against serious illnesses as well, such as cancer, heart attacks and strokes.

How Does Level Mortgage Life Insurance Work?

Level Life Insurance offers a fixed term policy that will guarantee a set lump sum that pays out if you die during that term.

For example, if you had a mortgage that lasted for 25 years, you’d take out a 25 year Mortgage Life Insurance policy to cover the mortgage balance – say £250,000 – over those 25 years.

If you died during that term, you’d receive £250,000 regardless of how many years into the policy you passed away.

Death

Level Life Insurance will pay out on the death of the insured individual.

Terminal Illness

Most policies now include Terminal Illness Cover, which allows the benefit to be paid out early if you’re diagnosed with fewer than 12 months to live.

Critical Illness

Critical Illness Insurance is an optional add-on to the policy for an additional premium. It extends the scope of the cover to include a payout for serious illnesses also – the most common claims are for:

Cancer
Heart Attacks
Strokes

Where the quality of Critical Illness Cover can vary considerably from one insurer to the next it is important check the small print.

Compare Top 10 UK Insurers

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Do I Need Mortgage Life Insurance?

The first thing to note is that Mortgage Life Insurance is not compulsory. You don’t have to have it to take out the loan.

However, when looking at the risks involved with not being insured many people prefer to have suitable protection in place.

How would your loved ones cope if you passed away during the term of the mortgage?
Could they meet the monthly repayments?

The Risk of Passing Away…

Using Office for National Statistics mortality data, we’ve put together a Life Expectancy Calculator that can work out the risk of you passing away during the term of your mortgage.

We’ve laid out this risk for a healthy male of three different ages over the course of a 25 year mortgage, highlighting the chances of them dying before the mortgage is repaid.

Age 30	Age 40	Age 50
1 in 18	1 in 8	1 in 4

How Much Does Level Mortgage Life Insurance Cost?

The price of Level Life Insurance depends on a variety of factors, including:

Your age
Your state of health
Your smoker status
How much you want to insure yourself for
The length of the policy term.

A 50-year-old smoker with a serious health condition would therefore pay more for cover than a healthy 25-year-old non-smoker.

Adding Critical Illness Insurance to your policy will also increase premiums due to the increased likelihood of you suffering a critical illness compared to passing away.

The table below contains premiums for a healthy individual of three different ages looking for Level Life Insurance worth £250,000 over a 20 year period.

Age	🚭	🚬
Age 25	£7.28	£11.25
Age 35	£11.24	£20.62
Age 45	£23.27	£51.60

Frequently Asked Questions

What's the Difference Between Level and Decreasing Mortgage Life Insurance?
Level Mortgage Term Insurance pays out a lump sum equal to the amount outstanding on your loan should you pass away within the policy term.

The amount of cover remains fixed throughout the policy, so you’ll receive the same in a payout in the first year as you would in the last year.

Level Life Insurance is typically used to cover an interest-only home loan. The amount of cover will remain the same throughout the life of the policy, just as the amount of mortgage debt will remain the same.

On the other hand with Decreasing Mortgage Life Insurance the level of cover falls over time. It is typically used to protect a straightforward repayment mortgage, where the amount of capital you owe also falls over time.

Decreasing Life Insurance is usually cheaper than level cover because as you get older and the risk of you making a claim increases, the sum insured is reduced.
Can You Get Joint Life Insurance for Couples?
If you have a joint home loan with your partner then you may want to take out a Joint Mortgage Life Insurance policy. With joint life cover the policy will pay out a lump sum if either partner dies, usually on the first incidence of death.

This means that if either yourself or your partner were to pass away the policy would pay out the full sum insured, thus leaving the remaining partner with the funds to pay off the mortgage in full.

It is important to compare the price difference between a joint policy and two separate policies as it’s often the case that two separate policies – which provide double the level of cover – can be obtained for a small additional premium each month compared to a joint policy.

Using this method also means the surviving partner would still have their own level of cover remaining should one partner pass away.
Can I Add Critical Illness Cover?
With almost all Life Insurance policies you have the option to add Critical Illness Cover. This protects you in the event of you suffering a critical illness as well as if you were to pass away.

Critical Illness Insurance works by paying out a lump sum benefit if you suffer one of the critical illnesses listed in the policy and that illness is of a severity specified in the policy’s terms.

A typical policy will provide protection against the chances of you developing one of around 40 critical conditions, but there are plans which cover fewer than five illnesses and those which cover more than 100, so it pays to check the policy terms and conditions carefully.

The most common conditions covered include:
- Cancer
- Heart Attacks
- Strokes
- Multiple Sclerosis
- Parkinson’s Disease
You’ll face an increased premium if you add Critical Illness Cover because of the increased risk of you suffering a critical illness is much higher than the risk of you passing away.
What is Terminal Illness Cover?
Terminal Illness Insurance is included as standard on most Life Insurance policies. It will ensure the policy pays out early if you’re diagnosed by a medical practitioner as having less than 12 months to live.

It’s very different from Critical Illness Cover, although because the two sound very similar people often get them confused.

With Critical Illness Insurance the illness doesn’t have to be terminal; for Terminal Illness Cover to kick in, you must have been told you have less than a year to live.
Should I Write My Life Insurance Into Trust?
Writing your policy into trust is a very important detail that often gets overlooked.

Doing so ensures your loved ones (the nominated beneficiaries) receive the Life Insurance payout promptly and tax free.

If you don’t write your policy into trust, it can end up forming part of the deceased’s estate, whereupon it may be chargeable for inheritance tax purposes.

Not writing your policy into trust can significantly increase the time it takes to receive any benefit payment as it may need to go through probate.

While a Mortgage Life Insurance policy is typically less important to write into trust because the benefit is destined straight for the mortgage lender, it costs nothing extra to write the policy into trust and many choose to do it anyway for simplicity’s sake.

Compare Best UK Mortgage Life Insurance Companies

Below is an overview of some of the top Mortgage Life Insurance companies in the UK comparing some of the key details of their policy terms.

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

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 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 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

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

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 previously operated Scottish Provident and Bright Grey as separate 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

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 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 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

We can help you decide on a level of cover that’s appropriate for you, advise on whether you need to write the policy into trust and the pros and cons of adding Critical Illness Insurance to the policy.

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 3027 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

If it is all getting a little confusing and you need some guidance please do not hesitate to get in touch. Pop us a call on 02084327333 or email us at help@drewberry.co.uk.

Tom Conner
Director at Drewberry