What kinds of life insurance are available?
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My partner and I are just about to take out our first mortgage – we’re both in our twenties. We are wondering if we should take out some form of life insurance so that the mortgage is paid off if one of us dies. Can you explain what’s available, please?
Diane Fish of Smith & Pinching responds:
Life insurance that will pay off your mortgage is normally a good idea as it will take away the stress of maintaining payments at a difficult time for the surviving partner. Policies can be set up using one of two options: Decreasing Term Assurance (DTA) and Level Term Assurance (LTA).
DTA provides cover that will decrease in value over the period of the insurance, which works for a mortgage as the amount you owe will decrease over time. The premiums may be slightly lower than LTA, reflecting the lower levels of cover later in the policy.
LTA will provide the same level of cover throughout the period of the insurance, so a death in the final years of the policy will provide the same pay-out as a death in the earlier years. It may be a little more expensive in terms of premiums.
Taking out a policy now while you are young and in good health will usually result in lower premiums. It can be set up to cover you until you pay off the mortgage, or could run until a certain age or event, such as retirement (although some providers may specify a maximum age). If you require additional cover later on for a bigger mortgage, you can top it up (although there may be additional health questions at that stage which could result in higher premiums).
You can take out single policies for yourself and your partner, or a joint policy that pays out on either the first or the second death. For mortgage protection purposes, payment on the first death is usually the preferred route.
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You might also want to look at some form of income protection, which would help with mortgage repayments if you or your partner were unable to work for a protracted period because of injury or illness. Some income protection policies will also cover redundancy. Income protection can be set up to start paying out after your employer’s sick pay support finishes, for example, for an agreed period (usually 12 or 24 months), which would give you breathing space for your recovery.
I suggest you discuss your protection needs with an independent financial adviser, who will look at your circumstances and help you decide what support would be suitable for you and your partner.
This is a marketing communication. Any opinions expressed in this article do not constitute advice.
For more information, please visit www.smith-pinching.co.uk