Will decreasing term life insurance still valid if I extend mortgage term?

surreygirl

I took out a HSBC repayment mortgage alongside a decreasing term life assurance policy from L&G from a mortgage broker. The mortgage will have 11 years to run when its discounted variable rate ends this November. The life assurance policy obviously is also valid for another 11 years. The statement from L&G tells me how much they would pay out should I die, and they've assumed an interest rate of 9% and the 'paid out' sum obviously far higher than my current mortgage balance. 
To make life more affordable I'd like to extend my remortgage to 12 or 13 years. Having checked L&G predictions, the amount they would need to pay out if needed to over the next 11 years would STILL be less than their forecasted payout, and of course I recognise that I would not have life insurance cover for the remaining 1-2 years of the policy.  Is this acceptable to life insurance companies to do this? It seems my life assurance is separate to the mortgage. Extending the mortgage term would make life more manageable for me, but I wonder if this would invalidate the policy?

tacpot12

I think it is unlikely to invalidate the policy; as you say they are seperate. I think it would be best to check with L&G. Tell them what you want to do, and see what they say. They may offer to extend the policy to cover you, but it is worth reviewing your need for life insurance first. Do you want more cover now. Who will inherit the house and are they going to be affected if you don't have life insurance cover for the last two years. Given how little the mortgage will be in the last two years, another option would be to buy level term life insurance now from somone like the Post Office who will write a policy that pays out a few 10s of thousands for not much money. Although creating another cost seems to go counter to your aim of making life more affordable. 

Do you really need to extend the mortgage term?  If you are struggling but you have a budget that shows you can afford to live, I would say just carry on struggling. Putting off clearing the mortgage will cost you more interest and delay the point at which you can start saving hard for your retirement. It is only doing HSBC a favour, not you.

Aretnap

The life insurance policy is almost certainly entirely separate from the mortgage. If you die it will pay out the amount stated in the schedule,v regardless of the status of your mortgage. Extending the mortgage won't affect the validity of the policy; neither would paying the mortgage off entirely.

Obviously you need to consider the implications were you to die in the last couple of years of the new mortgage with no life insurance, but there's no reason in principle why you can't do what your suffering.

Weighty1

You will get to a point where the life insurance, probably when it has maybe 4-5 years left to run is no longer sufficient to cover the remaining mortgage amount and as you say, there'll be no life insurance at all for the last couple of years so it depends whether you are happy with that risk?  The life company won't give two hoots about you extending the mortgage, they will simply follow their T&C's in relation to the amount reducing based on an assumed interest rate of 9%.

mgfvvc

The simple solution is to figure out when the existing policy is no longer sufficient and buy another policy to supplement it for the remainder of the new mortgage.  Presumably you will not need a lot of cover at that point and so the supplementary policy shouldn't be expensive.

mgfvvc

mgfvvc said:

The simple solution is to figure out when the existing policy is no longer sufficient and buy another policy to supplement it ...

I'm not sure that my highlighting of simple conveys a clear message.
The point is that "for every complex problem, there is a simple solution, that's wrong".
That may not apply here, but you should consider whether it does before deciding what to do.

It may be worth consulting a financial adviser, perhaps not so much for this decision, but for a wider review of your finances.

Having said that, my experiences of financial advisers have been quite poor, so choose carefully, if you do,

dunstonh

Having said that, my experiences of financial advisers have been quite poor, so choose carefully, if you do,

You shouldnt use FAs for buying financial products.  FAs are restricted in what they can offer and most are sales reps of the insurer/provider they represent.   For insurance, it should be IFAs or whole of market protection advisers (and care with whole of market mortgage advisers as many of them are actually tied to one insurer - mainly estate agent brokers)

mgfvvc

dunstonh said:

You shouldnt use FAs for buying financial products.  FAs are restricted in what they can offer and most are sales reps of the insurer/provider they represent.   For insurance, it should be IFAs or whole of market protection advisers (and care with whole of market mortgage advisers as many of them are actually tied to one insurer - mainly estate agent brokers)

You definitely don't want to use a tied adviser, but the IFAs I have used have been disappointing as well. 

DullGreyGuy

mgfvvc said:

dunstonh said:

You shouldnt use FAs for buying financial products.  FAs are restricted in what they can offer and most are sales reps of the insurer/provider they represent.   For insurance, it should be IFAs or whole of market protection advisers (and care with whole of market mortgage advisers as many of them are actually tied to one insurer - mainly estate agent brokers)

You definitely don't want to use a tied adviser, but the IFAs I have used have been disappointing as well. 

Personally, for protection insurance I'd go to an advisory whole of market broker. My experience of two IFAs in the insurance space was poor and both were clearly uninterested and kept wanting to change the subject to pensions/investment arrangements.