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Life Assurance - Protecting your mortgage

The first time that many of us will think about life assurance is when buying our first home. Many mortgage lenders insist that life cover is taken out when offering a mortgage, to ensure the loan will be repaid if the borrower dies. Even if this is not the case, it is prudent to do so if you have a partner or family who will suffer from losing your income to help make monthly mortgage repayments should you die. Sainsbury’s Bank this year warned that there are up to 4.2 million people that do not have life assurance with their mortgage. This equates to an estimated £217 billion worth of mortgages not protected by life cover.

There are different types of life cover. Cost depends on many things such as amount covered, term, age, smoker or non-smoker and general health. Monthly premiums can vary in price dependent on provider, so shopping around is a good idea. However, when comparing prices you should consider the fact that the amount could actually increase after you’ve completed the application details. Term life assurance is the most common type of life assurance used in conjunction with a mortgage.

Term assurance pays out a lump sum should the life assured die within a certain amount of time. If this does not happen, the policy pays nothing. Decreasing term life assurance is typically the cheapest form of cover. The amount assured decreases in line with outstanding mortgage repayment liabilities. This suits a capital and interest mortgage where the outstanding capital is repaid by the end of the mortgage term. With level term life assurance the amount that is paid out on death remains the same. This is suitable for an interest only mortgage where the amount of outstanding capital owed does not decrease over the period of the mortgage. Critical illness cover is a common additional benefit that can be added to a life assurance policy. The sum assured is payable on the conclusive diagnosis of a critical illness, such as: Cancer Heart attack Multiple sclerosis Stroke. It is wise to check what exactly is covered if taking out this option, as this can vary greatly between different providers.


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