Which life insurance for mortgage cover?

Vic5

Hi, we're in a dilemma over our life insurance, which we mainly have to pay off the mortgage should one of us die.

We first got our mortgage in 2003 for 25 years and life insurance to cover the term. We moved house in 2005 and increased both mortgage and life insurance to 30 years, which would therefore finish in 9 years in 2035. We last moved house in 2019 and assumed our life insurance cover would be extended to the remaining mortgage term, which is now ending in 2041. Obviously, we shouldn't have assumed, but it had always been automatically dealt with previously.

When we came to renew our mortgage earlier this year, we were told we only had two years left on our policy and it would be a good idea to renew our life insurance now due to our ages. We managed to find cover, but it wasn't easy.

When we went to cancel our original insurance we were told we still had nine years left, not two. So we now have two lots of life insurance, not knowing which one to keep.

Our original policy is costing £28 per month for both of us and the new ones are about £33 and £80. Should we keep the original policy and save the money we'd have spent on the new one? We will still have six years left on our mortgage when the original policy runs out. We have about £290,000 left on the mortgage and about 14 and a half years.

Thanks for any advice.

Weighty1

Are the plans decreasing policies, which are designed to track a mortgage balance or level policies which always pay out a fixed amount?

If it's the former then you'd be much better off replacing them because over the next few years the amount the plan decreases by will speed up, much like the amount you repay on a mortgage increases the closer you get to the end of it.

If it's level cover then you could risk keeping it BUT if you find yourself in poor health when the existing plan is nearing the end of it's term you may not be able to replace it, indeed, it sounds like there's already some factors at hand there so are these likely to improve to make it easier to find a replacement option in 9-years? It's unlikely.

Vic5

Thanks for the explanation. Yes, they're decreasing policies.

You're right in that we might not get cover in 9 years, but I wonder if we kept the old policy and save the money we'd have spent on the new policy, we could use that to help pay off the remaining mortgage if necessary. I have no idea how much of the mortgage the final 6 years would be though! I don't suppose anyone can answer this as it obviously depends on interest rates.

Weighty1

You can make a good stab at an estimate though. Based on an interest rate of 5% and a balance of £290,000 there'd be £141,000 (give or take) in 9-years time. Obviously, it'll be less if the interest rate you pay is less, more if it's higher but it shows that it's not an insignificant sum and certainly one that wouldn't be covered by saving £85/month (the difference between the 2 new plans versus the old plan).

In fact, the saved money would probably do well to have accrued to £15k if you died right on the cusp of the 9-years.

Vic5

Thanks very much. I worked it out in the end using 5% as well. We've decided to go with the new policy.

Appreciate your help!