Do they need mortgage cover? Death in Service enough?

Gareth_Johnson

Hi there,

I have a couple of young colleagues who believe they need decreasing term assurance to cover their £100,000 mortgage. The thing is, one of them already has death in service that amounts to £100,000 and the other has death in service benefits amounting to near 100K. Is term assurance therefore really necessary? I get that they could move jobs at some point but couldn't they just get the mortgage insurance out at a later date if they did indeed decide to move companies/got made redundant?

I've also heard you can't "assign" death in service benefits to mortgage payments but surely the survivor could use the money to pay the mortgage off? Or is that not allowed in some way... I'm a bit confused about that side of things but wanted to point them in the right direction.

Thanks all!

ACG

Its a work benefit, it could be pulled or they could be made redundant or change jobs - what happens if they were to get a medical condition in the meantime?

There is nothing wrong with helping them, but its probably worth them speaking to a Mortgage or financial advisor to discuss the pros and cons.

HappyMJ

Gareth_Johnson wrote: »

Hi there,

I have a couple of young colleagues who believe they need decreasing term assurance to cover their £100,000 mortgage. The thing is, one of them already has death in service that amounts to £100,000 and the other has death in service benefits amounting to near 100K. Is term assurance therefore really necessary? I get that they could move jobs at some point but couldn't they just get the mortgage insurance out at a later date if they did indeed decide to move companies/got made redundant?

I've also heard you can't "assign" death in service benefits to mortgage payments but surely the survivor could use the money to pay the mortgage off? Or is that not allowed in some way... I'm a bit confused about that side of things but wanted to point them in the right direction.

Thanks all!

Once the surviving partner has paid off the mortgage how are they going to support themselves without having to work. It's more likely that the surviving partner would need to work and therefore if they've had children pay for childcare. With the £100,000 in service benefit they can decide to stay at home a few years and bring up the children before deciding to go back into work if they ever want to. £100,000 wouldn't last very long if you've got yourself and one or two children to bring up on your own even with no mortgage payments to make. I would suggest they talk to a financial advisor. If they have children I would recommend they take out more cover.

My partner is widowed and is claiming on a £50,000 policy and all it gets her is £120 per month increasing with inflation for the rest of her life...she's 50. That amount of money is nowhere near enough to cover her day to day living expenses.

hcb42

it's not just about mortgage debt - i don't over insure but £100K decreasing term assurance is probably low cost - and everyone has to make their own decision as to what they are comfortable with..

Gareth_Johnson

Thanks all, I am indeed thinking of suggesting to them to get independent advice, I just wanted to make sure they wouldn't be getting bad advice. They don't have children, one is 21 and one is 25 but I get where you are coming from with regards to supporting yourself without your partner. As said ACG I thought they could just get insurance if they moved jobs/the benefit was pulled but good point about the medical condition.

I've also heard talk that it is a good idea to get level cover rather than decreasing cover at a young age, because you will probably need more mortgage/personal cover in the future. Wasn't sure about the legitimacy of that myself.

weeowens

I went for two separate policies & not joint life. Level term for thirty years.
I have DIS as well but for £20 per month we have quite a bit of cover & if one us passes away the other still has a live policy.
Just my way of thinking it out & may not suitable for all.

Gareth_Johnson

Great, thanks for your response weeowens. Did you also go for RPI linked premiums or leave it as level without any increases? My thought is that without RPI, inflation will eat away at the final pot.

weeowens wrote: »

I went for two separate policies & not joint life. Level term for thirty years.
I have DIS as well but for £20 per month we have quite a bit of cover & if one us passes away the other still has a live policy.
Just my way of thinking it out & may not suitable for all.

weeowens

Level, as I knew the insured amount would well cover the mortgage & DIS would cover extras, as it were.

Weighty1

Gareth_Johnson wrote: »

Great, thanks for your response weeowens. Did you also go for RPI linked premiums or leave it as level without any increases? My thought is that without RPI, inflation will eat away at the final pot.

Whilst inflation would eat away at the value each year they survive they are getting closer to the point at which life insurance would probably no longer be required, whether that's childrens financial independence, retirement, closer to death etc etc.

As has been mentioned, your colleagues should be getting their own advice. What is a concern for them might not be a concern for you and vice versa.