When taking out a mortgage it is likely that the mortgage lender will offer a package of insurance products to go with your mortgage. This may include buildings insurance, household contents insurance and life insurance. If you are taking out an interest and capital repayment style mortgage then you are under no obligation to opt for this insurance with your mortgage provider. Instead, you have the opportunity to look around for more competitive insurance quotes that could end up saving you hundreds of pounds in insurance premiums each year.
It's an open market
As far as life insurance goes, mortgage companies are quite happy to provide you with a quote to go alongside your mortgage. If it's convenience you're after then by all means take up the life insurance cover with the mortgage provider. However, the life insurance market is extremely competitive at this time - and is certainly a great deal more cut-throat than it was just five years ago. This has meant that for life companies to compete for business they must offer lower insurance premiums or risk losing out on customers. These days a mid-twenties non-smoker can obtain life insurance for as little as £5 per month!
Of course, the question you might be asking at this point is 'do I need life insurance coverage?' The answer to this question is quite simply 'yes'. Should you die during the term of your mortgage the debt will be passed on to those that inherit your estate. If your mortgage application is a joint application with your partner, then it is your partner that will bear full responsibility for that debt and for finding those monthly repayments.
Life insurance minimises the risk of a mortgage debt being left behind in the event of your death. It basically means that whoever the mortgage debt passes to, whether it be your spouse or children, they will have a lump sum payment with which to clear the mortgage debt.
Life insurance options
When searching for life insurance you will have a choice of insurance policy types - mortgage life insurance (reducing term) or term life insurance. Mortgage life insurance is typically a short-term insurance policy where the pay out reduces in line with the mortgage debt. Term life insurance is a longer term life insurance policy that pays out independent of the mortgage debt.
Mortgage life insurance is typically cheaper than term life insurance. Both mortgage life insurance and term life insurance pay out a lump sum and both require constant monthly insurance premiums to be paid in. Do bear in mind though that if you take out mortgage life insurance, the pay out upon death will only be enough to cover the outstanding mortgage balance. Your loved ones will therefore still need to find the money to live from day to day and to pay the relentless flow of other household bills.
