Affect on life insurance...

HoolyNI

What affect would mortgage overpayments have on decreasing term life insurance?

Was reducing monthly payments but once i switched to decreasing term i received a letter warning me that decreasing the term would likely lead to complications with my life insurance.

Anyone any experience of this?

Also if i had 10k in an overpayment reserve and keeled over dead, would this 10k be taken off any life insurance payout?

Thanks

wantabetterlife

Thats an interesting question. We are in a similar position and making overpayments. I would have thought that the life insurance would still pay out but the best thing to do would probably be to phone the insurance company and check. Did your letter come from the mortgage comapany? They are probably trying to put you off reducing your term so that they can make more money out of you.

somewhatnew

Hi HoolyNI

There are a number of things you could do if you make overpayments on you mortgage:
1. Reduce the amount of cover with the company - give them a call and see if they can lower your insurance to reflect your mortgage. This will reduce the premium.
2. Redo the insurance - maybe cheaper elsewhere for going for a lower amount.
3. do nothing .

If you did nothing a decreasing mortgage policy will typically assume a interest rate of, say 8% (best to check this with your policy documents), and providing you mortgage interest rate is below that figure your mortgage will always be paid in the event of a claim. If you have been overpaying your mortgage then in the event of a claim not only will the house be paid off then there will probably be a little surplus as well.

Regards

blueberrypie

Having re-mortgaged at a lower rate and also paid off a lump sum from the mortgage at the beginning of this year, I called the insurance company providing the life insurance we took out alongside our mortgage to ask about this.

They explained that it is just a life insurance policy with a decreasing payout. It's calculated initially so that it would pay off the full original mortgage at the start, with the insured amount decreasing as time goes on so that it would be zero by the time the mortgage was paid off, assuming no remortgaging, no overpayments, etc. Once it's set up, it's independent of the mortgage - changes to the mortgage don't affect the insurance policy unless you make changes to it separately.

We asked for a quote on altering the policy to take into account our reduced mortgage, and they provided that, but the difference in premium was minimal, so we opted to stick to paying what we have all along. Any claim paid out now will be more than what we owe on the mortgage.

I don't know if all these policies are the same though, so it would be worth asking your own insurer.

HoolyNI

Thanks all for replies, will hoke out my policy documents and see if they can shed a bit more light on the matter.

HoolyNI

There is a section regarding minimum life cover:

The mortgage started on the start date....:question:

mortgage term was equal to plan term....yes

initial mortgage equal to life cover....yes

mortgage was repaid in equal monthly instalments...no, apart from interest rate changes am now making variable overpayments

interest on the outstanding principal was charged at the rate of 8% per year...:question: