Mortgage life assurance - newbie help

decker27

We are looking to get a mortgage (repayment) of around £312,000 and have been doing some research into Mortgage life assurance.
As far as I can tell this should be cheaper than Level term Insurance.

We have been quoted around £36 for 2x single covers for half the amount when doing level term insurance but when checking out the free quotes for mortgage life assurance via mse recommendations (Cavendish) the price was coming back at around £111.

Using Cavendish online I choose repayments in months but as there is no mention of time period for payment on the results page I assume this £111 is per month.

If so then this seems a big increase per month for mortgage life assurance over level term insurance where the general consensus seems to be the opposite.

So I wanted to fine out if people thought the figures were about right or if they can offer any advice in reducing this monthly cost

_Andy_

Sounds like the latter includes critical illness cover.

holly_hobby

The cheapest form of life cover for a repayment mortgage is a Decreasing Term Assurance (DTA) - and is such because the sum assured over the term gradually reduces in general line with the mge balance.

Unless you are single and buying as friends under a tenants in common arrangement, a joint policy DTA is entirely suitable, and the most cost effective, as there is only 1 policy fee, with payment on 1st death (so the surviving life assured can redeem the remaining mge debt.

If you wanted excess capital on death and the next most affordable solution (which would be highly recomended if there are dependants, or the loss of partners income would cause a financial headache), then a level term assurance policy (LTA) will provide this, but is more expensive than a DTA, given that the sum assured will remain constant throughout the policy term.

Of course additional provision, such as critical illness will hugely inflate the premium.

Without obviously performing a financial review, I don't know what needs or gaps in life or income protection you may have, but talking basics, the cheapest form of life protection of a repayment mge is a DTA - comparison sites may give you premium ideas, as would sitting with an IFA whom will provide a full finanical review of your circs and make recommendations accordingly, with future review dates as life ticks along and family requirements change.

Hope this helps

Holly x

decker27

Thanks Andy and Holly, in terms of We this is my wife and I. If I were to go for 2x single DTA (without critial illness cover) to cover the life and ammount of the mortgage and one of us were to die does this mean the payout would cover the remainder of the mortgage? If so then the mortgage would be £0 so the second single cover would have a £0 payout should anything happen to my wife.
Is this correct?

holly_hobby

No, on 2 single policies, they would at outset (if you wanted the survivor to have no mge debt) to both be written for the full outstanding mortgage amount.

Then when/if 1 of you dies within the policy term, the deceased's policy would pay out into their estate( if not written in trust for the spouse) and then cease. With the surviving spouse retaining their own individual DTA for the remaining policy term, which if they survive, it will cease without value at policy end date, if they die the monies will go into their estate (if not under trust for the benefit of another).

Whereas on a joint 1st death policy, whilst the sum assured should again be equal to the mortgage debt at time of writing, this will be paid on 1st death occuring within the policy term (whereby the survivor can repay the mge), and then the policy cover will cease. Or if you both survive the term, it will simply cease without value at policy end date.

Is that what you mean ?

Holly x

decker27

New to this Holly so just trying to get my head around it so many thanks for your help. So a DTA - although should be the same amount as the mortgage is not tied to the mortgage but merely to the amount to be covered and the term of the policy. So in the situation above if I died and the policy payment would go into my estate or trust and not straight away to the mortgage lender. In addition my wife's policy would continue and should she die then her policy would payout, in theory to be used by our children

holly_hobby

Yes, you've nailed it !

No policies are assigned any longer, which means it would go to your wife.

With single life policies, its quicker re payment, for the policy to be written undet trust for the benefit of whomever you wish (ie Mrs Decker for your policy, and Mr Decker for her policy), ask the provider for the forms if you go direct (or your IFA will deal if you seek their services).

Comments made here are general and not a recommendation. As you have dependants, and are new to life protection etc, I would strongly advise you have a full financial and protection review with an IFA, you don't have to accept any of their recommendations, but they will highlight and explain to you where gaps in your family protection are, which you can priortise according to your budget.

Hope this helps

Holly x x

decker27

We don't have children (yet) but was working it into the scenario so I could understand it better.
Thanks again for your help Holly

amnblog

Get some advice on this life insurance Decker or someone could end up with a big tax bill.

holly_hobby

With regard to the proceeds from a single life policy being paid straight into your estate on death (ie not under trust), there is full IHT exemption between spouses, regardless of the net value of the decd's estate.

Writing a policy in trust, whilst speeding payment to the recipient as it avoids probate (which is why touched on if you intend on effecting 2 individual policies, even though you are married), also effectively ring fences the proceeds o/s of the decd's estate, so is also prudent for IHT and estate planning, esp relevant where no spousal transfer (with current individual nil rate IHT exemption being 325k, with under certain circs policy premiums paid being assessed as gifts under IHT regs).

Don't worry your experienced Financial Adviser/IFA (if engaged) will happily guide you on this, the use of different trusts (inc different issues that may affect its future IHT position) and future IHT planning, should you wish to write 2 policies, and utilise a trust to avoid probate delays on death during the policy term.

Hope this helps

Holly

decker27

Final question, as the company (sequence homes) we are sorting our mortgage with are doing the hard sell, do we 'legally' need to get any sort of life mortgage assurance with our mortgage. We feel a bit rushed as the seller has a court order to sell by a certain time so would prefer to sort this out (as I can see the benefit) at our own pass.