What sort of Life assurance / mortgage cover do i need?

Question

We have an interest only mortgage and need to get some kind of cover for life insurance / endowment or mortgage assurance - we have no idea what to look for - we want it to pay off the mortgage should anything happen to either of us - can anyone advice?

Answer 1

You need a level term insurance policy to run the length of time your mortgage is left. Options you also have are
Joint life first death - Meaning one policy with two people on it and the first person to die the money pays out and policy ends.
Two Single Policies - For a small price more you can have a single policy of which when the one who owns the policy dies the money is paid out. The benefit of this is that something happens the both of you twice the money is paid out (two policies two pay outs) and someone else benefits ie children
Just don't take out cover for the amount of your mortgage but consider - do you have loans, burial expenses, and money to recover from the lost of an income???
Just dont pick the cheapest policy but the company who seeks to pay out without little if any red tape. After all you pay insurance to claim on should something happens. Any problems contact me Life Insurance Specialist - [e-mail]

Answer 2

First, you need to get rid of your interest-only mortgage. Why? None of your payments are going to the principal, and therefore no equity is being build up. Plus these interest payments are temporary and you may fix an income shock when principal payment is involved. For example, lets say you are paying $600/month right now on your home. This is just interest payments. In few years, it will jump to maybe $900/month. Are you able to afford the extra $300/month payment?

Since your goal for purchasing life insurance is to pay off your mortgage in case either one of you die, you should purchase a 30 year term insurance. They are inexpensive and you can buy lots of coverage.

While term insurance is inexpensive, you should consider opening an IRA account (try for Roth IRA if you qualify) if you haven't already and put money into it every month. If some mutual funds, you can invest systematically for as little as $25/month. Others may need $50/month. Investing systematically is good for you since you are building wealth for retirement and also lowering the costs per share. You should read the prospectus carefully before investing into a mutual fund.

I strongly advise that you refinance your mortgage into a fix-rate mortgage after you purchase your life insurance.

Answer 3

Hi, your friendly insurance guy here again. :)

Essentially, your case is one that Term insurance works well for. Term insurance can be purchased for a duration equal to the length of your mortgage (typically 30 years.) If covering the mortgage is your only goal, then buy the insurance with a face value equal to your total mortgage payoff amount.

For example, if you have a $250,000 mortgage with a 30-year payment period, you would buy 30-year level term (meaning the premiums stay the same for the entire 30 years) with a face value of $250,000.

I generally do not recommend such a formulaic method for my clients, however. As another poster pointed out, upon your death other expenses will be immediately important, such as funeral costs. You may also feel it important to pay off all outstanding debts so your family can move forward wtih life debt free. In that case, add funeral costs, credit card payoff amounts, car payments, student loans and the like to the total face value.

Basically, before you buy, make sure the face amount you apply for will cover everything you'd want paid off for your family, not just the mortgage. Your family will be much better off with insurance proceeds that match your specific overall circumstances rather than just having one need relieved.

Best wishes, and feel free to write with any questions.

Answer 4

You need a level term assurance policy as the entire debt will remain constant throughout. A decreasing policy would be cheaper, but would not suit your requirements and in the event ofthe worst happening would pay out the amount you need.

Seek advice from an independant financial advisor. For this type of work there would be no fee and they would be able to find the best deal for you.

Answer 5

Please go and see an independent Mortgage / financial adviser. You will find one in your local phone book. Ask for a free first meeting, and listen to the advise given. Then go to another to see if the advise is consistent. Make sure they are independent as they can look at the whole market to find you the most economic solution to your problem. good luck

Answer 6

We had a repayment mortgage which also covered us if either of us died the mortgage would be paid. This was with Lloyd's/TSB.

Answer 7

This site might have some helpful advice for you. http://insurance.divinfo.com/