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What is mortgage protection insurance?
Your mortgage is likely to be one of - if not the - biggest financial commitment you’ll ever make. You may have saved up for years to get on the housing ladder and now you have, you’ll want to protect that all-important mortgage! Sure, mortgages aren’t particularly exciting but having your own home is, so some kind of relevant insurance should be up there on your list of priorities.
That’s why there are specific mortgage related insurance policies out there designed to handle this debt when you pass away - such as mortgage protection insurance (also knows as mortgage life insurance). But with life insurance out there too, which should you go for and how do they differ?
Do I need mortgage protection insurance?
Do you ‘need’ to get it? Not in the legal sense. But ‘should’ you get it? Yes. Otherwise, who’ll pay your mortgage if you’re not around? You’ll either pass on the debt to your loved ones, or in a worst-case-scenario, the lender will take the house back.
Both are avoidable if you protect your mortgage, and ensure it’ll get paid if the worst happens to you.
How much does it cost?
As with almost any insurance product, premium prices differ from person to person and mortgage to mortgage, based on varying factors. This could be things like your age, health, medical history and lifestyle (such as whether you are a smoker and how much alcohol you drink), and the size of your mortgage.
However, mortgage protection tends to be cheaper than life insurance as it’s a decreasing risk - the more you pay off over time, the less your pay out will need to be.
Use our quick life cover calculator to get started
What’s the ‘right amount’ of life cover?
It’s different for everyone. To figure out the ‘right amount’ of cover for you, you’ll want to factor in your outstanding debt, your family commitments (now and in future) and what you can afford to spend each month in premiums.
Our calculator will help. And after you calculate the ‘right amount’ of cover, give us a call (or leave your details we’ll call you) so LifeSearch can search the market for policies that match what you’re after.
Level term mortgage life insurance
Let’s say you’ve a £250,000 mortgage and you buy £250,000 in level term mortgage life insurance for 25 years.
The ‘level’ bit is key. It means the total amount you’re insured for (£250,000) stays the same across those 25 years.
- If you die on day 9 your loved ones’ pay-out will be £250,000.
- If you die on day 900 your loved ones’ pay-out will be £250,000.
- If you die on day 9,000, your loved ones’ pay-out will be £250,000.
Over time, you’ll owe less and less on your mortgage. So if you die late in your policy term, your loved ones can pay off what’s outstanding on the house, with plenty of that £250,000 left over for other things.
Advantages of level term cover
- Your premiums won’t change
- You know what your loved ones will get
- Extra financial support (assuming you die late / later into your mortgage term)
Disadvantages of level term cover
- It can be more expensive
- Takes no account of inflation (you may be able to add this on at a later date – see below)
Decreasing term mortgage life insurance
Let’s say you’ve a £250,000 mortgage and you buy £250,000 in decreasing term mortgage life insurance for 25 years.
The ‘decreasing’ part means the total amount you’re insured for (£250,000) decreases alongside your mortgage.
Say you die when there’s £150,000 left on the mortgage. That, then, is the lump sum pay-out.
Die with a year to go and your mortgage may be £10,000 – that then is the lump sum pay-out.
Advantages of decreasing term cover
- Often cheaper than level term
- Peace of mind your mortgage is covered
- Premiums are fixed and will not change during the duration of the policy
Disadvantages of decreasing term cover
- Pay out value decreases over time
- Just covers mortgage, no extra to leave behind
You can choose to peg level term mortgage life insurance to inflation. It’s called indexation or index-linking.
This is advantageous because £250,000 now won’t have the same buying power in 10- or 20-years’ time.
Inflation and the cost-of-living drive up consumer prices over time. If you spent £100 in 2010 and tried to repeat the exact same transaction in 2020, you’d have needed £22 more.
Index-linking means that your level term mortgage life insurance pay-out rises over time to match the same buying power you had when the policy began. Premiums do go up to match, so you’ll gradually pay more in premiums to, again, reflect the rising cost of living.
How LifeSearch can support you
LifeSearch are an independent intermediary provide you with top customer service and ongoing support should you ever need it.
We're independent
We offer expert, fee-free advice with no obligation. We do all the leg work for you, but will always keep you in the loop.
Here for you
We work for you and not the insurer - which means it's our job to listen to your needs and search the market for the policies and providers, best suited to you.
Claims
If you need to claim, we'll do it for you. We have a dedicated claims desk to support you and your family during life's darkest times - so you can get back to what matters.
A Little more about LifeSearch
Life insurance isn’t fun. There are several kinds of life insurance policies to choose from, and dozens of providers with their own versions of those products.
Without LifeSearch in your corner that’s a lot of reading … reading you don’t have to do.
Frequently asked questions about mortgage life insurance
The other big difference is the price in premiums. Mortgage protection tends to be cheaper than life insurance as it’s a decreasing risk - the more you pay off over time, the less your pay out will need to be.
The short answer - not usually, but it’s definitely important.
There’s no legal requirement for it the way there is on car insurance, but many lenders do require you to have cover as a condition of your mortgage.
If you don’t have any dependants and are purchasing a property by yourself, there might not be much of a need for mortgage payment insurance as if you were to pass away during the mortgage term, the property could be sold to pay off any outstanding mortgage.
If you have a family however, you should seriously consider taking out mortgage protection insurance because if anything was to happen to you, it will impact your loved ones - and this type of policy can help to keep a roof over their heads.
At that point you may no longer be protected by your mortgage protection insurance, but plenty of other protection policies are available, to cover you and your loved ones from the impact of illness or to arrange a financial cushion for after you die.
If you want to explore cover that lasts beyond your mortgage term, speak with a LifeSearch expert. We build policies to fit your plans and what you need to feel secure.
Here's what you'll need to complete your claims process:
Step 1: Find the policy details
Step 2: Contact your protection adviser or insurer
Step 3: Get your documentation together
Step 4: Submit your claim
Step 5: Receive your insurance pay-out
Our dedicated Claims Team are here to help you, free of charge. You can visit our claims page, to see exactly what information you will need in order to make a claim.
Ready to take the first steps to get protected?
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