It has been estimated that 6 out of 10 Britons have life insurance cover linked to their mortgage. This means that if something were to happen to them, then their outstanding mortgage would be paid. Some policies give a single lump sum so the property is paid for outright while others give a monthly instalment to cover the mortgage repayments. In this article we examine:
- Whether you need life insurance for a mortgage
- Getting a mortgage without life insurance
- Cancelling your mortgage life insurance
Do I need life insurance for a mortgage?
To be eligible for a mortgage, life insurance isn’t compulsory. The only insurance policy that your mortgage provider will demand that you have is buildings cover to protect their investment in your property.
Whether to take out an insurance policy with your mortgage depends primarily on your personal circumstances. If you have bought the home with your partner and they wouldn’t be able to afford the mortgage repayments alone, then this is a good reason to take out this insurance cover.
Another reason why insurance is advisable is if you have a family. If you die with a mortgage, your lender could reclaim the outstanding money from your personal estate. This might mean that the house would have to be sold on your death.
Can I get a mortgage without life insurance?
It is possible to take out a mortgage without any life insurance. Your mortgage provider might offer you MPPI (mortgage payment protection insurance), but it’s always a good idea to shop around as their policies tend to be more expensive. A MPPI is more comprehensive than a life insurance policy and covers you for accidents, sickness and unemployment.
There are different types of mortgage life insurance. The most common are fixed or level term life insurance which offers a sum of money (specified by you) which will be enough to pay off the mortgage and give your partner and/or family some extra money. The other is decreasing-term life insurance. This is a much cheaper policy as the amount that is paid out reduces over the term of your mortgage as you repay more money to your mortgage provider. Apart from insurance, you should also consider the advisability of taking out critical illness cover. This policy would help if you were unable to work because of an injury or ill health.
How can I cancel my mortgage life insurance?
Any insurance cover can usually be cancelled within the first 30 days of its purchase without any financial penalties. After this time has elapsed, you can notify your insurer at any time that you wish to cancel your insurance. Although you won’t have to pay a fee, you won’t be entitled to a refund.
Before taking the decision to cancel an insurance policy, it’s always a good idea to discuss the matter with your insurer. You might be able to arrange reduced cover in return for more affordable repayments. You could then take out another policy later when your financial circumstances improve, but as you’ll be older, it’s highly likely that your premiums will be higher.