Understanding mortgage life insurance

You choose to pay a fixed monthly amount

You’ll be offered either guaranteed or reviewable premiums, depending on which life insurance policy you choose.

• Reviewable premiums: Insurers will periodically assess and adjust your premiums based on risk and economic factors, such as interest rates or advances in medical treatment. At first, these policies might cost less, but you could end up paying more in the long run. But if you’re planning to take out a long-term policy with a high value payout, then reviewable premiums can help with the rising cost of living. Bear in mind that your age and health are only considered when you take out your policy. So, while payouts and premiums may be higher, they’ll still be lower than if you need more cover when you’re older and have any health concerns
• Guaranteed premiums: The amount you pay for your cover will be fixed until the end of your policy. If you’re on a tight budget, then choosing a policy with guaranteed premiums could help you stay on top of your monthly expenses

The healthier you are, the less you pay

Your lifestyle, age and health will impact your monthly premiums. Making healthier lifestyle choices, such as quitting smoking or doing more exercise, could have a positive impact on your mortgage life cover premiums.

Of course, you could still develop a critical illness even if you lead a healthy lifestyle. Adding critical illness cover to your life insurance policy could help ease financial stress for you and your family. It could also allow you to focus on getting better. Critical illness insurance can cover things like cancer, a heart attack or stroke.

Joint or single insurance?

If you pay for the mortgage with your partner, you could take out joint mortgage insurance. A joint policy pays out when the first policyholder passes away. You might find that a joint policy is cheaper than having a single policy each. But it’s important to consider what might happen if you and your partner were to separate while on a joint policy. If you then have to take out a single policy when you’re older, your premiums might be higher.

Or, you could take out two single policies. This means you’ll both be covered, even if you break up. And unlike a joint policy, two single policies will pay out when each policyholder passes away.

Inheritance tax

If you die during the term of your mortgage life cover policy, the payout could be part of your estate and make it subject to inheritance tax. You could write the policy into trust, which means the insurance will pay directly to your named beneficiaries. In other words, it won’t be considered part of your estate.

Need more help? Talk to an expert

• It’s important to take professional advice before writing the policy into trust. It’s often very difficult to change or cancel a trust once it’s been created, so understanding the implications before making a commitment is crucial
• If you want to place your insurance policy in trust, try to choose a policy that won’t charge you an extra fee
• Find expert financial advice on Unbiased where you can contact professionals such as independent financial advisors (IFAs), solicitors and more
• Some Citizens Advice Bureaus also have volunteer IFAs as part of the Moneyplan scheme, so check if your local bureau is taking part