Mortgage life insurance usually pays out as a lump sum which can be used to clear your outstanding mortgage if you die.
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Legal & General Mortgage Life Insurance is designed to pay off your outstanding mortgage debt should you pass away.
When the policyholder dies, a lump sum will be paid out to the family which can be used to pay off the remainder of the mortgage.
If the primary earner of a household passes away, those they leave behind may find it difficult to cover their core expenses including monthly mortgage payments, utility bills and everyday living costs.
Legal & General Mortgage Insurance can provide the financial support to allow your loved ones to stay in their home without the worry about making mortgage repayments should the worst happen and you pass away.
Legal & General Mortgage Life Insurance covers the death of the policyholder by paying out a cash lump sum to clear the mortgage debt should they pass away.
Insurers usually include Terminal Illness Cover in policies, which provides you with a payout if you’re diagnosed with less than a year to live. This benefit is subject to certain terms and different insurers may have different definitions of a terminal illness.
Most Life Insurance policies provide an option to include Critical Illness Cover (not to be confused with Terminal Illness Cover) to protect you and your mortgage against the risk of serious illnesses such as: Cancer, Heart Attacks, Strokes.
Given the chance of suffering a serious illness is far higher than the risk of passing away, including an element of critical illness cover will increase the overall cost of your policy.
Legal & General Mortgage Life Insurance is similar to a level life insurance policy with the exception that your cover is tied to your mortgage loan. It is designed to pay out a lump sum that can repay your mortgage in full if you pass away.
Legal & General Mortgage Life Cover is intended to cover the entire cost of your mortgage loan, so it will usually pay out a lump sum large enough to pay off what is left of the loan in one payment.
Being tied to your mortgage, it is also typical that the policy’s end date is set as close as possible to the expected day that you pay off your mortgage.
There are two specific types of Legal & General Mortgage Life Cover that you will need to choose from when taking out your policy. The type of covers are designed for different types of mortgages and so act differently while you have them.
If you have a principal repayment mortgage loan, Legal & General Decreasing Mortgage Life Cover is usually the most suitable option. With such a plan, the level of cover declines over time aligning with the amount outstanding on your loan, eventually reaching zero at the end of your policy when you have officially paid off you mortgage.
One thing to be aware of when purchasing decreasing cover, however, is the decrease rate of your Mortgage Life Cover. If your benefit’s decrease rate exceeds the rate of your mortgage loan decrease, you may find yourself lacking in cover.
If you have an interest-only mortgage a Legal & General Level Term Insurance policy is usually the most suitable option. With this type of cover the level of protection remains fixed throughout the life of the plan to reflect the fact that you don’t have to repay the outstanding capital balance of the loan until the mortgage ends.
It’s usually the best option for those looking for a level of family protection over and above the mortgage loan, also, as the amount of cover doesn’t diminish over time.
If you hold a mortgage together with another person and both contribute to the payments, it makes sense to protect both halves of the mortgage. This can be done by purchasing a Joint Mortgage Life policy. Joint cover will pay out your agreed benefit if either partner passes away before your mortgage has been paid off.
Be aware that most Joint Mortgage Insurance policies are Joint Life First Event, which means they’ll pay out when the first partner passes away and will end immediately after. As such, it may not be an ideal Life Insurance option if the people covered would like to leave something to their children in addition to paying off their mortgage because the policy would be over after the first claim.
There is more than one option when it comes to premiums and how your policy is priced, which is something to look out for carefully.
Guaranteed Premiums are fixed at the start of your policy and won’t change unless you adjust your cover.
Reviewable Premiums on the other hand are assessed regularly and adjusted according to what the insurer deems an appropriate price depending on how circumstances have changed in the wider world.
Depending on your personal circumstances, one premium type is likely to be better suited for you.
Guaranteed Premiums usually start out more expensive but are the more reliable option if you intend to have your policy for a long time and could work out cheaper over the life of the loan. Reviewable Premiums are usually cheaper at the start, but they can see unexpected price hikes and don’t typically have predictable increase rates.
With both Level and Decreasing Term Mortgage Life cover it is possible to add on Critical Illness Cover, which will cover you if you are diagnosed with a critical illness or injury.
Critical Illness Cover will only pay out if you are diagnosed with a condition included on a pre-set list of health problems covered by your policy. .
Legal & General Mortgage Life Insurance with Critical Illness Cover will cover you against death, terminal illness and critical illness. A policy will pay out if you pass away, if you are diagnosed with a terminal illness, or if you are diagnosed with a condition on your insurer’s pre-set list of critical conditions.
The amount of life insurance you take out should ideally be enough to cover your mortgage repayments and the needs of your family if you were no longer around. The average cover amount is £140,000.
Life insurance isn’t a legal requirement, but most mortgage lenders will ask you to take out appropriate cover. You don’t need to take out life cover from your lender – you can buy it elsewhere.
The cost of life insurance can be as little as £5 per month, but your premiums will depend on your individual needs and circumstances, your age, if you smoke could affect the overall cost.
Life insurance is for your peace-of-mind, so you know your family will be financially protected in the event that you're no longer around. Life insurance is a form of security to provide for dependants such as children or spouses.
Term insurance is the most common type of life insurance and pays out only if you die within the term. For example, you might take out a 25-year policy so your family could claim if you were to die within 25 years.
Whatever your age, as an adult it’s always a good time to start thinking about life insurance. In particular, people with loans, mortgages and financial dependants should consider getting a life insurance policy.