WHY MORTGAGE LIFE INSURANCE?
= Mortgage Loan Repaid on Death or Critical Illness*
Life insurance for a Mortgage. Broker deals from £5pm.
“…Help to stay in your Family Home”
‘Do you need Life Insurance for a Mortgage’?
We are often asked this as Brokers, ‘Do you need life insurance for a mortgage’? As some people are unsure, they are also checking online ‘Life insurance for mortgage is it compulsory uk’ ?
In those days’ gone by, the Banks or Building Societies often made it obligatory to have ‘life insurance for mortgage cover’.
Back then in the olden golden days, it was usually ‘Yes’ to the Bank or Building society manager as they filled in your loan application, looking down their glasses at you.
They assumed the answer was usually yes to their question….Do I need ‘life insurance for mortgage’ is it compulsory UK requirement? (often via them) as a condition of the lenders mortgage loan agreement.
In the 2020’s, the answer now is usually ‘No’. You are not legally obliged to get your Mortgage with Life Insurance.
Some specialist mortgage lenders may still make it a condition to get some mortgage protection insurance. However, whoever you are considering taking out a new mortgage with, they should not make you ask why life insurance should be taken out via their company only.
See below our comments as why NOT to use Banks & Building Societies for their ‘Mortgage Protect Insurance’. You should be free to search the marketplace for your insurance for mortgage loan, as long as your plan is suitable to both your families needs & the lenders.
Please read on & see different types of mortgage life cover insurance options available.
‘Do you need Life Insurance with a Mortgage’?
Now, this is a totally different question re ‘Do you need life insurance with a mortgage’. What if two people take out a joint mortgage together (whether married or not) and those people are also named on the joint mortgage deed?
Then your lender can potentially go after either one of you, for the full repayment of your joint Mortgage debt. This means if one of you sadly died, then the other person could be left with a very big debt. If the main mortgage breadwinner dies, the situation could be even worse.
The surviving partner can now be legally pursued by the Mortgage Lender for future ongoing mortgage repayments. At your worst time, your situation could get even worse.
According to research by Beagle Street, there is over £400B of UK mortgage debt not covered by any life insurance. The study shows the worst uninsured ‘mortgage cover gap’ areas affected being London & South East.
So, buying a property or remortgaging & now wondering as you read this…‘Do you need mortgage life insurance’?
Why Mortgage Life Insurance?
Do you have to have Life Insurance with a Mortgage?
Again, we are often asked this question… ‘Do you have to have Life Insurance with a Mortgage’?
Then, please carefully consider what we think are your 3 x Maybe Reasons = as to ‘Why do you need life insurance on a mortgage’.
‘Do you need Mortgage Life Insurance’?…Your 3 x ‘Maybe’
- YOUR HOUSE ‘Maybe’ your biggest asset
- YOUR MORTGAGE ‘Maybe’ your biggest debt
- YOUR HOME ‘Maybe’ repossessed if you do not keep up repayments on your mortgage
CONCLUSION: Your 3 x ‘Maybe’ = So Maybe you do need ‘Life Insurance on a Mortgage’
Life Insurance on Mortgage Coverage
When looking at life insurance on mortgage coverage, also look at the wider picture of what may happen (if the worst sadly happens). People often forget about this bigger picture & just concentrate solely on covering their mortgage.
If the main breadwinner died, would you still have sell your house, because although the mortgage life policy has now paid out, you now have no ongoing income?
- Your Mortgage payments are only part of your regular monthly outgoings
- Other ongoing expenses include Food, Gas, Electric, Mobile, Travel, Credit cards, Utilities etc;
- Regular monthly bills will not stop if sadly someone dies
- Likewise you would also still have to cover funeral costs and maybe repay other debts
- It makes sense to have both ‘Mortgage Protect Insurance’ & Family Life Insurance if you have dependants
Life Insurance for Mortgage Protection = Decreasing Life Insurance
- This Protection is designed to help insure a repayment mortgage loan or other debt
- This debt amount owing will reduce over the term if you keep up repayments
- A Decreasing Term policy will also reduce over its term or time period
- The plan payments stay the same throughout the insurance for mortgage loan policy
- Cover is ‘underwritten’ so Insurers ask you medical lifestyle questions before offering terms
CONCLUSION: Mortgage life cover decreasing helps protect repayment style loans
Life Cover for Mortgages | Interest Rate v Protection Rate
- Many mortgages or secured loans are setup on a repayment basis nowadays
- Lenders set a ‘rate of interest’ on the mortgage which can be fixed for period eg; 2.99% 3 years. Alternatively it can be variable
- When you setup a Mortgage Protection plan, Insurers also set a ‘rate of interest’ at which the policy reduces from outset
- The ‘rate of interest’ varies between these insurance for mortgage loan plan providers
- Some life cover for mortgage have a set rate of 10% or allow variable rates eg; from as low as 1% upto a high 15%
CONCLUSION: Ensure the Life Cover for Mortgages rate of interest is sufficient to cover long term
Life Insurance with Mortgage Protection for Interest Only
- Interest-only mortgage means the amount owing stays the same throughout
- How will the ‘Mortgage Capital’ be repaid eg; investments, retirement or on sale?
- The capital therefore may or may not be repaid or reduce on Interest-only mortgages
- Life insurance with mortgage protection via level term insurance offered upto age 90
- Or whole of life insurance assures it will always payout, whenever you die
- Insurers may offer either life insurance for mortgage protection to match your different mortgage style
CONCLUSION: Check if a ‘Mortgage Protect Insurance’ is a level or decreasing
Life Insurance for a Mortgagewhat mortgage insurance do i need
|‘life insurance on mortgage loan‘
Which is the Best Life Insurance for a Mortgage 2024?
- There is no set answer to this question, as given types of insurance for mortgage loan, the devil is in the details
- What type of Mortgage Protection is actually required eg; cover for Repayment or Interest Only
- The cheapest life insurance to pay off mortgage policy quote may be age costed ie; reviewable premiums
- Likewise the most expensive policy could be unsuitable to your individual case circumstances or budget
- If you have health issues, your job or hobby are higher risk then each Insurer may view this differently
CONCLUSION: Speak to us about the Best Mortgage Protection 2023 most suitable to your needs
3 Reasons NOT to use Banks for Insurance for Mortgage Loan
- No Choice ? Often tied to just 1 Insurer for their insurance for mortgage loan products
- eg; Barclays & TSB Bank just use Legal & General. NatWest just use AIG. Lloyds & Halifax just use Scottish Widows
- Charged More ? Could increase your premiums if you have any Health Issues via their ‘chosen Insurer’
- A life insurance mortgage protection broker can shop around to maybe get you a standard rate price
- Cost ? May charge more for their Life Insurers products by adding on ‘their margin’ or overhead
CONCLUSION: Use a Broker to compare Insurance for Mortgage in case of death
What Mortgage Insurance do I need? Include Critical Illness ?
- Critical Illness* covers a large number of risks [ could be 50+ benefits ] to help repay the mortgage
- Statistically you are far more likely to be making a claim on critical illness cover, if included
- 50% of people will be diagnosed with a type of cancer in their life [Cancer Research UK]
- It pays out on survival & recovery via specified benefit types eg; cancer, heart attack, stroke, multiple sclerosis etc;
- Do I just need life insurance for mortgage protection or better still your mortgage repaid whilst recovering from critical illness ?
CONCLUSION: Insurers raise their premiums based on higher risk chances of making a claim
Is Terminal Illness – Critical Illness*?
- NO. Terminal Illness on an insurance for mortgage loan means you have sadly less than 12 months to live (ie; incurable illness)
- Once agreed by the Insurers medical claims, they will payout the potential death claim earlier or in advance.
- Life Insurance for a mortgage just repays it if you die or are terminally ill
- Terminal illness benefit is often included ‘free’ as part of a Mortgage Protection Policy
- Critical Illness is ‘paid for’, often as rider benefit alongside life insurance on mortgage loan
CONCLUSION: People often get confused between these 2 benefits
What’s Martin Lewis view on Mortgage Life Insurance?
Martin Lewis on Life Insurance Mortgage Protection importantly says that this is something💯100% EVERY Parent, Partner, or Persons with dependants needs to consider.
MSE says in their guide it can be also referred to as Mortgage Protection Insurance or Decreasing Term Insurance. The reason being because it’s a type of insurance that pays out if you die before you finish paying your mortgage.
MoneySavingExpert do also note that Mortgage Protection Insurance is cover specifically designed to protect the balance on your mortgage, if you were to sadly die during its term
They do remark though it is worth bearing in mind that if you do take any mortgage payment holidays, then the pay out amount may fall short of the mortgage balance.
MSE says that a mortgage decreasing life insurance policy is often cheaper than level term life insurance.
Money Saving Expert Martin Lewis Mortgage Protection advice is IF you want to leave a lump sum for your financial dependants to cover other debts AND ongoing spending, a level-term life insurance policy is likely to be a better option.
They do point out though you could always have both (which we agree as brokers & also strongly recommend).
*Does Martin Lewis recommend Mortgage Protection Life Insurance?
In their Money Saving Expert review guide, Martin Lewis asks “What happens if you were to die before your mortgage is💯’100% repaid”?
Your loved ones may then have to pick up the mortgage repayments OR instead be forced to sell the property to help repay the lender.
He remarks IF anyone relies on your income and would struggle without you around, a life-insurance policy can be a cheap way to ensure they have a financial lifeline when you’re gone.
No Dependants what then?
MSE also asks IF there’s no one you want the money to go to, then don’t bother? Equally, they say if you do have dependant’s but there would be little financial impact if you died, then you still might not need any policy cover.
Check any Employer Cover?
Martin Lewis says check if you are employed, you maybe entitled to get some FREE death-in-service life cover.
This may pay out a multiple of your annual salary eg; 3/4 x times your basic income (or more for some people), whilst you’re an employee of that company.
BUT they also say don’t just rely on that free death-in-service life cover ie; should you leave that employer, or any terms withdrawn.
Or, if you have poor health there afterwards, then that could make it harder to get an affordable mortgage protection deal.
Existing Life Policy?
MSE also says you might not have a life policy specifically for or called ‘mortgage protection insurance’? However, if you do have a level-term life insurance policy, then at least this will give your dependents a lump sum if you died.
Your family they point out, would ideally need to use that life insurance sum to then pay off the mortgage.
So the MoneySavingExpert also comments you will need to ensure the amount you are insured for on your life policy should exceed the amount you owe on your mortgage.
Plus as importantly, the life policy is in force for as long as your mortgage term ie; no good if the mortgage is for 30 years, but the other policy ends in 5 years.
We agree here with MSE, because one life insurance policy may NOT be enough to cover both the main mortgage, repay debts & loans, plus look after your family etc; all over the correct time frames.
Martin Lewis also suggests being the Money Expert “NEVER BLINDLY BUY DIRECT” expensive offers either via a Bank or One Insurer ie; Shop around or use a Broker.
Getting any mortgage life insurance or decreasing life policy offered to you direct also via your mortgage provider, Martin advises can make a dent into your pocket during the term of your mortgage protection insurance policy.
He comments their mortgage insurance plans are often heavily inflated AND you are under no obligation to take it with them.
As he points out, mortgage life insurance cover is completely separate arrangement than from your mortgage agreement and lender.
Their rule of thumb they advise is, you should get quotes from a number of mortgage protection insurance providers.
Lastly, MoneySavingExpert also said generally remember, not all insurers plans are featured on insurance comparison sites. As brokers, we would also agree here – so let us help you shop around for your best broker deals.
In terms of the large range of Mortgage Life & Critical Illness Insurance products available, Money Saving Expert are fully impartial with all their best buy reviews. As you maybe aware, neither Martin nor MSE never endorse products.
Note: Yes, they mention individual products & services on MSE site, but they make it very clear don’t ‘support’ them.
To sum up on Martin Lewis life insurance for mortgage views ….
- It can help repay your mortgage if you die
- Switching Insurers MAY help slash life cover costs
- You may need it if you have dependants
- Consider joint mortgage protection if the debt is in joint names
- Make sure your policy has guaranteed fixed premiums
- Write your life insurance mortgage protection policy in trust
- Trusts may help to avoid both probate delays & tax bills on death
- Quitting smoking can reduce your premiums
CONCLUSION: Martin Lewis says lifecover via a Mortgage Broker may not be the cheapest
What Insurance do I need when buying a house uk?
Credit Life Insurance | Life Insurance for Mortgages
- Banks & Building Societies do strongly recommend you protect your mortgage credit borrowing via them
- However, for Life Insurance Mortgage Protection, they can’t make you take out any Credit Life Insurance with them alone
- Likewise, Mortgage Brokers shouldn’t make you take out cover via them only, by refusing to help on the mortgage deal
- You have a choice to research the ‘insurance for mortgages’ loan marketplace yourself, to find that best deal
- Declining cover altogether could put your entire family at risk by assuming your mortgage debt if something were to happen
- This could put them in a very awkward position of maybe having to sell the family home and under great financial pressures
CONCLUSION: Compare here Mortgage Credit Life Insurance via Leading Uk Insurers
Buy to Let Life Insurance
- Lenders will recommend you still insure a buy-to-let mortgage
- As a landlord you have certain legal obligations but getting life insurance for your buy to let is often an advisory only
- You may not be able to offset any landlords expenses for any buy to let life insurance against tax if setup on a personal basis
- However, consider relevant business life policy if you have a limited company involved with property rental
- If the buy to let property mortgage is interest only then consider a whole of life policy or long term cover buy to let life insurance
- Or the buy-to-let mortgage is repayment then you may need a decreasing buy to let life insurance
CONCLUSION: Buy to Let Life Insurance could help protect your ongoing rental income
What is Insurance for Mortgage Payment Protection (MPPI)?
- Mortgage PPI insurance mortgage protection covers you against accident, sickness & hospitalisation
- Designed as insurance for mortgage payments but not life insurance with mortgage for death
- Insurance for Mortgage Payment Protection is a short term plan & usually paid for upto 12/24 months per claim
- Some MPPI plans may also cover unemployment (Pandemic 2020’s may affect this option)
- Some new Insurers may not offer unemployment part of policy due to the Coronavirus pandemic
- Mortgage Protection Payment is the same as PPI. However, the codes for this product sale have tightened
- Various risks, pre-existing issues or employment problems may well have initial exclusions after policy starts
- Not medically underwritten [unlike PHI Insurance] meaning cover is offered with no medical tests or GP reports
CONCLUSION: Consider MPPI as well as Life Insurance for Mortgages
Insurance to Protect Mortgage Payments
Apart from life insurance & critical illness Martin Lewis comments also what other ‘insurance to protect mortgage payments‘ are available?
You could as mentioned above cover your mortgage payments short term with MPPI or alternatively longer term with Income Protection (PHI).
- PHI helps to provide a tax free income insurance to protect mortgage payments upon accident, sickness or hospitalisation
- May have an initial waiting or deferred / waiting period ie; 4/8/13/26/52 weeks
- Can be offered as budget cover with 12/24/60 months per claim or comprehensive full term per claim
- Insurers PHI policy can usually run the mortgage term or say upto state pension ages
- Cover may be based on maximum of say upto 70% of your pre-tax gross annual earnings
- Medical evidence may be required & a medical examination for based amounts of cover or those with health issues
CONCLUSION: Consider PHI as well as ‘Life Insurance for Mortgage’
‘What happens to Life Insurance when Mortgage is paid’?
So, what happens to life insurance when mortgage is paid off? Well, it depends on the time frames when you repaid it.
For example: If you took out a uk mortgage life insurance to match the exact time frame of the uk mortgage to buy your property eg; You originally borrowed £350,000 on a joint repayment basis over a 30 years period.
Concurrently you also take out the joint life policy for £350,000 decreasing over the same 30 years term, then logically both the joint loan and life insurance policy will then end together in 30 years time.
At that stage, you won’t be needing the joint life insurance anymore to repay the joint debt, as you won’t owe anymore money as the mortgage has now ended.
However, if you repaid the debt off early (either because you moved home, overpaid the regular payments or had some cash to repay it off early) then you will probably be left with the life insurance policy still.
In this instance, ‘what happens to mortgage insurance when mortgage is paid’ means you could either keep that policy going until it ends as your back up plan, or alternatively just cancel it….if you feel it serves no purpose
What happens to Mortgage Insurance when you sell?
What happens to mortgage insurance when you sell, can be a slightly different answer than above question. For example, you maybe moving home but no longer need a mortgage.
As per above, this means you could either still keep the insurance policy going until it ends as your back up plan, or just cancel it….if you feel it no longer serves its purpose anymore.
However, you could be now buying somewhere with another mortgage that does not correctly fit or match the amount of the existing policy or term.
For example, your existing mortgage protection plan is for £76,000 with 12 years left in your sole name. The new mortgage however is for £165,000 over 22 years but now in joint names.
In this instance, you may now ideally need a new £165,000 joint mortgage protection policy over 22 years. As such, you may wish to initially just keep the existing plan going until the new joint one is fully setup.
Once done, then you have the same choices to either cancel or keep it and for the same reasons as mentioned already above.
If you health has changed interim for the worse however, check if your existing insurance plan included any guaranteed insurability options. This means the Insurers may allow you increase you cover within certain limits & without further medical evidence.
Unsure to what do? Then seek our professional broker help.
Should I put my Life Policy into Trust?
When any single life cover isn’t written into trust, it will be paid to the executors of the deceased’s estate. Same applies if 2 people insured died together on their insurance for mortgages policy. They will handle the administration, known as probate in N Ireland, England, Wales and confirmation in Scotland. If not, any lump sums benefits will fall into your estate if you died prematurely.
If you have not made a will, this can then cause further complications with the uk mortgage life insurance proceeds upon death.
Until probate is fully granted, no monies can also be paid out to those named in the will. On average, this can take upto 6 months or longer. Your lender would need to be advised why the debt is not being repaid? Interest may still accrue and any payments may still be required, if the mortgage is in joint names.
By not placing the protection plan into trust may also swell up the total estate values, leading to potentially Inheritance Tax IHT issues.
So placing a policy in trust can help to ensure that the policy proceeds go to the correct beneficiaries you decide to nominate at that stage. It can also help avoid possible probate delays & IHT costs. Ask the Insurers to kindly provide their available standard trust form wordings & seek legal advice if unsure.
Importance of Insurance Disclosure & Claims?
All Insurers are in business to protect, insure & payout. Life insurance for mortgages cover is therefore based on your full disclosure at the time you take the policy out ie; being 100% as honest & accurate as possible.
It is not always easy to remember all your historic health details when applying. The Consumer Insurance Act 2013 says you must not be acting careless, deliberate or reckless when applying. If so, it may not payout! eg; If you occasionally smoke but intend to quit smoking, then you must tell them you are smoker. Or forget a familial history of blood pressure or cholesterol (even if it costs more).
Should you make a claim, your Insurers will send you a claim form for you to complete. Once received back, they will usually contact your GP to confirm any health details. They will then assess if why mortgage life insurance protection claim is valid and cross check if you originally disclosed all the correct details. If you look at the Insurers recent claims payout, you will see that it is Good (but like most Insurers – not 100%).
What if my health or lifestyle changes after I have taken the policy out?
Any health or lifestyle changes since, usually does not void your existing policy, if it wasn’t relevant at that time of initial underwritten insurance application. It maybe the Insurers request GP reports when you originally apply, to check any health details disclosed. Likewise they may not.
So take care to doubly re-check on your insurance mortgage protection application what you initially disclosed to the Insurers, as this information then stands now and in the future. Please check your original life insurance for mortgage uk T&C’s.
Joint v Single Life Insurance
A ‘joint’ life cover means it jointly covers 2 lives but then pays out on ‘1st death insurance or claim’ basis. This means once the chosen amount of cover is paid, the mortgage and life insurance policy benefits would then end. This is usually the cheaper option for Insurers (as it only pays benefits once) but conversely leaving the surviving partner without any cover.
So, if you have a joint mortgage and the joint lifecover is not fully used to repay the mortgage (as there are other debts), then there could be an issue for the surviving partner. In this instance, you may also need alongside some additional family life cover.
Is there a benefit of having 2 x seperate plans if in a relationship & one partner claims, then the surviving partner still has their own seperate policy?
A single life insurance for a mortgage policy means it covers just that 1 person only. It then pays out the chosen amount of cover if the person dies, or is terminally or critically ill during the term of the policy or whenever the event occurs it occurs if whole life.
Do I need Home Insurance for a Mortgage?
Do I need Home Insurance for a Mortgage? The answer is Yes here. Unlike Mortgage and Life Cover, it is usually a legal condition of the loan that you take out suitable buildings insurance cover and adequate to the mortgage providers criteria.
The reason being is that the Lender has their % stake in your home. They need to therefore know that all parties are protected ie; there is sufficient money available to help pay for any major repairs should a disaster happen.
For example, if there was a major fire that sadly burnt some or all of your property, without any home insurance to help cover those expensive costs, what would happen? Firstly, the place would potentially uninhabitable and a health risk.
Secondly, the valuation of your home would no longer be worth its correct value against the amount of mortgage amount borrowed ie; the lenders money is now also at risk.
Do I have to get my Home Insurance from my Mortgage Provider?
Do I have to get my Home Insurance from my Mortgage Provider? The answer is No here. Although it is a requirement as mentioned above (and they would like you to) just like mortgage life cover you should be free to search the insurance for mortgages marketplace.
Note: that Home Insurance is often sold as a twin (buildings & contents). The buildings insurance part helps to cover your property against any structural damages i.e. the roof, wall, floor etc; but usually not the actual contents of it.
It is this contents insurance part that may not be a legal mortgage protection requirement but could make life very difficult if something happened.
Contents insurance helps covers the cost of replacing or repairing your valuables if they were damaged, destroyed or stolen. It usually includes everything you would take with you if you moved property ie; furniture, kitchen appliances, beds, curtains, clothes, television, IT computing equipment and jewellery.
CONCLUSION: Do I need Mortgage Protection Life Insurance
So do I need Mortgage Protection Life Insurance? If you have a family & dependants who all live together in the house, and they could not afford to pay the mortgage without you around, then you should seriously consider why a mortgage life insurance policy makes good business sense.
Alternatively, if you are buying property with a mortgage and live on your own with no dependants whatsoever, then you may not wish to take out mortgage protection life insurance ie; if you died your property can be sold to pay off any outstanding mortgage loans & secured debts.
Unsure & need broker advice? Let us help arrange your ideal ‘Insurance for Mortgages’ policy.
Article review on Why Mortgage Life Insurance by Martyn Spencer Financial Adviser 2024
For reassurance re health for men & women – we review many of the best Life Insurers selling Life Insurance in UK (inc NI).
Unsure ? Complete our no obligation quote form to speak with a Professional Financial Adviser – about your ideal Insurance Protection.
- Confidentially discuss your own personal situation & any concerns you may have
- We will therefore discuss ‘What insurance do I need for a mortgage’
- Assess your position given factors such as – health, age, personal & family history
- Compare your various ‘life insurance on mortgage loan’ options from a fair & personal analysis
- Get a Competitive Quote from one of the UK’s leading Life Insurers
- Then if you are happy to proceed – given an affordable budget – Help arrange your ideal life cover plan or plans