The Cheapest Life Insurance To Protect A Mortgage
Copyright (c) 2010 Steve Wentworth
You need protection for your loved ones so they are not straddled with a mortgage debt should the worst happen to you. The mortgage is the biggest debt most of us are hit with in our life. If the mortgage balance was only achieved on the incomes of a joint couple how would one spouse cope with the mortgage repayments if the other spouse where to die.
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).
Before choosing the type of mortgage life insurance you must first concider which repayment method you mortgage is on. In addition to this you should also consider whether you have any tied loans associated with the property/mortgage, for instance a secured loan. A decreasing term life insurance is only suitable if the mortgage or loans are on a full repayment basis (where each month you pay capital and interest). 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: -
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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.
Calculating how much life cover 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 life policies term period should be slightly more or equivalent to the term remaining on the mortgage. Therefore if your mortgage has 22 years 11 months remaining an ideal term would be 23 years.
What if I have one or more secured loan?
The remaining mortgage term and secured loan term are equal then just add the two balances together as your sum assured. 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.
