What life cover do you need for a mortgage?

It wasn’t so long ago that mortgage lenders insisted that you have life cover to protect your mortgage. In fact, many lenders actually kept the original policy documents?

Now things are much more relaxed and the option to protect the mortgage, or not, is yours.

If you are living by yourself and have no dependents you may choose not to have any life cover at all. Who would really benefit from this?  However, if you own the property with your partner or have dependents then protecting the mortgage in the event of death is important and need not be too costly.

The type of cover needed is linked to the type of mortgage you have.

If you have an interest only mortgage then the mortgage balance will not reduce. As you are only paying the interest each month the amount borrowed remains static. In this case a Level Term Assurance policy would do the trick. This provides a fixed amount of life cover over a fixed number of years and has a guaranteed monthly premium which won’t change.

For a joint mortgage you would have the option to cover one or both of the borrowers with either a joint level term plan or maybe two single life level term plans written as ‘life of another’.

If your mortgage is a standard capital and interest or repayment loan then a Mortgage Protection Plan (MPP) would be a good idea. As you make payments to the lender so your mortgage balance decreases. However, it does not decrease at a set pace, the first years are loaded with mortgage interest and in later years this balance changes. This means you pay off the mortgage more slowly at the beginning. A Mortgage Protection Plan is specifically designed to provide cover for a repayment mortgage. It provides a decreasing level of cover over a set period with guaranteed monthly premiums. Again you have the option of single or joint policies.

If you mortgage is a mixture of repayment and interest only we would call this a part and part mortgage.

To get the best mortgage cover for any of these situations you should consider speaking with an Independent Financial Adviser. The person who gave you mortgage advice may not be an IFA so you might have to find one.

An IFA can simply and easily set up a proper level of cover for your mortgage so you can be happy that you and your family are covered. You may also like to think about whether critical illness cover is worth having. This pays out if you suffer a pre-determined list of illnesses.