Life cover / Mortgage

hillcats

The wife and myself have two life policies each.
We both have a decreasing term policy to pay the mortgage off in the event of one of our deaths, we both have a level term policy to provide funds in the event of one of our deaths.

If something happened, the other would have piece of mind knowing that the mortgage was now paid and they had a lump sum to help support them and our 2 kids.

Now comes my issue, if we were to be in a position to pay off the mortgage soon could we still keep up the repayments on all four policies and would the decreasing policies still pay out in the event of death even though there would be no mortgage to clear?

I guess the level term policies are no issue as just standard life cover.

Thanks.

dunstonh

Now comes my issue, if we were to be in a position to pay off the mortgage soon could we still keep up the repayments on all four policies and would the decreasing policies still pay out in the event of death even though there would be no mortgage to clear?

yes
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lisyloo

Check whether either of you have death-in-service benefits at work.
Also bear in mind that if you have private or company pensions these may pay out a lump sum and/or pension if you die before retirement.
Depending on how long you've been paying in this could be significant.

parallax_20

Death in service was 4x my salary, which is pretty good as long as your salary is of a reasonable amount. Otherwise you would still need to take an additional policy for the extra.

Out of curiosity, why would you want to keep repayments on the mortgage cover if you were to pay off the mortgage? It makes no sense as there would be nothing to pay payout in the event of either death. As far as I know, the mortgage cover will decrease inline with your outstanding mortgage balance.

lisyloo

why would you want to keep repayments on the mortgage cover if you were to pay off the mortgage?

To pay off other debts, fund child care etc. etc.
There are other things to fund after death - like living costs, child care etc. rather than just mortgages.
A number of couples life a lifestyle on two incomes that they could not afford on a single income.
A single person cannot alos earn and income and provide full time child care.

It makes no sense as there would be nothing to pay payout in the event of either death. As far as I know, the mortgage cover will decrease inline with your outstanding mortgage balance.

No, this is wrong.
It decreses in line with you expected mortgage balance not the actual mortgage balance.
This can cuase either a lump sum payment or potentially a shortfall.

If you already have a policy that you purchased when young and in good health then it may make sense to keep the existing policy in some circumstances.

Personally I have my life inruance inside a pension wrapper. This gives me 40% tax relief. This loophole has now been closed, so I have a great deal which I cannot repeat as it's stopped now.
So for some people, keeping an old policy makes sense.
It also might make sense for someone who had developed a serious illness, that arose after the policy had been taken i.e. they are covered for it.
And it also mind make sense for someone who took out a policy a long time ago when they were much younger.
So for some people and old policy is a very cheap policy.

As always cirucmstances vary.

lisyloo

Conversely it is also possible that an old policy is expensive.
When I was at Uni (about 1988) there was a time when we all thought we'd know someone that died from AIDS within 2 years (it wasn't initially called HIV).
Life insurance rates during that period were high and in later years they came down a lot when HIV turned out not to be a death sentence.
Someone who took out a policy during that time may find they are on uncompettitive rates, so it can work both ways.