Most (but by no means all) brokers will simply offer a reducing or level life assurance policy that simply matches the mortgage. For example a 25 year decreasing mortgage protection plan will cover a 25 year repayment mortgage. Whilst there is fundamentally nothing wrong with this, you could do so much better with a little bit of extra thought. For example:
- If a plan that pays out on death or earlier critical illness is too expensive, rather than opting for life cover only, opt for a split policy that will pay out something on critical illness, rather than nothing at all. We can source providers who will offer this type of cover to you.
- Whilst a decreasing term policy is designed to cover a repayment mortgage, why not consider a level term policy? For a small increase in premium, this means that your life cover remains level rather than reducing with the mortgage. This means that if you died towards the end of the mortgage, you would not only pay off the mortgage but would provide a lump sum for your family too. The difference in premium is sometimes pence rather than pounds.
- Why not consider 2 single policies rather than one joint policy. This means that if one of you dies or suffers a critical illness, whilst your policy will pay out, your partner’s policy will remain in tact. The cost of having 2 single policies rather than one joint is normally no more than 10% extra.
- The cheapest providers often offer reviewable premiums, especially for critical illness cover. At outset, you may not really appreciate the significance of taking reviewable rather than guaranteed premiums, however this could prove to be a costly mistake. A reviewable premium means that after a period of time (typically 5 years), the premium is reviewed by the life company and it can be increased for several reasons, which are nothing to do with you. So in most cases opting for guaranteed premiums may prove to be a wise choice in the long term.
When you buy or remortgage your home, choosing your mortgage protection policy may seem boring or unimportant in comparison to your mortgage package, just an “add-on” to the mortgage along with the home insurance. This view could cost you your financial security. It is a sad fact of life that many people will rely on their mortgage protection policy and it is of vital importance that you get the very best cover available as well as maximum value for money.