So you need some life insurance to protect your mortgage should the worst happen to you. I am sure you are aware a mortgage is the largest debt that the majority of us face in our lifetime. If that mortgage was obtained on the basis of a couples combined income then the loss of life from a spouse could bring upon some immense financial strain to the remaining partner. Not to mention that if the widow's income does not stack up they will be unable to remortgage or possibly maintain the existing mortgage payment.
Mortgage life insurance is an ideal companion to a mortgage it can be taken on a decreasing term basis so that the sum assured reflects the reducing mortgage balance of a capital and interest repayment mortgage (the now most widely used repayment method for a mortgage).
In considering mortgage life insurance you should first understand the repayment method of your mortgage. In addition to this you should also consider whether you have any tied loans associated with the property/mortgage, for instance a secured loan. You must only choose a reducing term assurance product if your mortgage and/or and secured loans are on a full capital and interest repayment method. If however you have an interest-only mortgage then you need to consider whether you have a tied investment plan used to repay the capital amount, some investment plans have a life insurance element built into them. Here's a breakdown of the different types of investment plans and whether you would still need life insurance: -
Investment plan Life insurance built in
Endownment Yes
ISA No
Pension No
For those investment plans without a life insurance built in or if you simply have an interest-only mortgage and no investment plan for repaying the capital then a separate level term life insurance policy should be considered.
How do you determine how much life insurance you will need?At the time of consideration you simply need to call your mortgage lender and ask for a balance of your mortgage, if you have no other associated loans then this figure becomes your sum assured for the life policy.
How long should the term be?The term for life insurance policy should be equal to or slightly more than the remaining term of the mortgage. Therefore if your mortgage has 22 years 11 months remaining an ideal term would be 23 years.
What if I have one more secured loan?If the term of your secured loan is equal to the term of your mortgage then simply add the balance of both the mortgage and secured loan and take out a sum assured equal to both. If you have different terms for your mortgage and secured loans, then you should consider separate policies for each, if these are through the same insurance provider they can be combined on the same protection plan.
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