Life Insurance - Mortgage

Peter_87

We are currently in the process of purchasing a property.

We are looking at a Level Term Joint Life Insurance Policy and are considering our financial commitments.

We have dependants and other financial commitments however are trying to understand how much cover we would need specifically for the mortgage. Should we cover the amount we are borrowing or the total amount repayable over the term of the mortgage?

Our Mortgage Provider provided a quote however this was only for the amount we were borrowing however I am thinking that it should be for the total repayable over the term.

Any ideas/suggestions?

jonesMUFCforever

It depends on the type of mortgage you are going for.
If it is an interest only mortgage then a level term for the mortgage amount would be advisable.
If you are going for a repayment mortgage a reducing term policy would suffice.
The amount of cover should equal the mortgage amount.

You do not require cover for the total payable over the term.

ACG

The total repayable over the term is on the basis that:
1) You have the initial rate followed by the SVR for the full term.
2) The SVR does not change.
3) You do not switch products.
4) You make no overpayments.

If the life insurance pays out after say 10 years, the balance would be due and you would presumably clear the Mortgage off in full. If you do that, then you have avoided paying maybe 15 years worth of interest. You would also no doubt have changed mortgage products a couple of times during those 10 years.

You only need to cover the amount outstanding, not the effects of interest etc as you will be paying that as you go along each month and then avoiding the part of the interest in the future due to paying it off early.

Hopefully that makes sense.