Mortgage life insurance

No, mortgage life insurance pays off your mortgage in full if you die. Mortgage protection insurance covers your mortgage repayments for a short time if you’re too ill to work or lose your job.

Most mortgage protection policies will pay out for a maximum of a year. This can help you stay afloat if you’re ill and need time to recover, or while you’re looking for a new job. But mortgage life insurance is designed to clear your mortgage entirely once you’re gone. This ensures your family aren’t left with mortgage repayments they can’t afford and prevents them needing to sell your home.

Joint life insurance policies cover two people at once, so if either of you die, your beneficiaries get a pay-out. After that, your policy ends.

This can be useful if you have a mortgage together, as it guarantees that it’ll be paid off if one of you passes away.

The downside is that joint policies only pay out once. If you both die at the same time, your beneficiaries would only get a single pay-out. This might be enough to cover your mortgage, but it may not be enough to cover other things, like the financial support your children will need after you’re gone.

You can secure yourself against this by taking out two policies - a joint mortgage life insurance policy, and a second joint life insurance policy, for example. That way your pay-outs would cover both your mortgage, and the outgoings your family would need to keep living comfortably if you passed away.

If you’re simply looking to make sure your mortgage is covered, though, then joint policies can be a good idea.

Just be aware that if you separate and decide to terminate your policy, you won’t get back what you’ve paid in in premiums.

Joint policies can be taken out with anyone over 18 – they don’t need to be a spouse or relative, but you do need to share the same address. They’re usually more expensive than single life insurance policies as you’re covering two lives at once but are usually cheaper than taking out two separate policies for each person.

If you’re the only policyholder and decide to end your marriage but keep your home, you can simply keep paying your mortgage life insurance premiums and you’ll continue to be covered.

If you have a joint policy, you should be able to remove the second policy holder and continue with a single person policy. Your premiums are likely to change however, so contact your insurer to see what they can offer you.

The same is true if you move home. You should be able to keep your existing policy but tweak it to better suit your new situation. Calling your insurer is the easiest way to see what your options are. Or try out guide on how to change your life insurance policy for tips on what to look out for.

Most policies will cover you if you die due to illness or an accident. But there are a few situations where your mortgage life cover may not pay out.

These can include death as result of:

• Drug or alcohol abuse
• A reckless act
• Suicide

Failing to pay your premiums could also deprive you of a pay-out. Miss too many, and your policy could be terminated. You’d then lose everything you’d paid in so far and would not receive a pay-out if you died. Most policies will have a grace period in which to pay, though, so if you do miss a payment, you’ll be able to make up that balance and keep your cover.

Many life insurance policies will pay out if you’re diagnosed with a terminal condition. If the condition is included in your policy details, you’ll be able to claim for your full coverage amount while you’re still alive. You can then use it to pay off your mortgage before you die, making your remaining time a little easier for you and your family.

To be classed as terminal, you’ll have to be diagnosed with an illness that limits your life expectancy to 12 months or less. Some insurers may have a different definition of what a terminal illness is, however, so it’s worth checking with them before you take out a policy.

Terminal illness cover will usually be provided free of charge, unlike critical illness cover which is a charged add-on to your life insurance policy.

Some insurers will ask you to have a medical before you’re offered cover. Whether you’re asked to have one depends on a range of factors, including your health, lifestyle habits and even your age.

If you’re a fit, non-smoking 30-year-old with no pre-existing medical conditions, you’re less likely to be asked to have a medical than someone older with a more complicated medical history, for example.

The point of a medical is to assess your general state of health. This helps insurers determine your risk of passing away during the term of your policy. If you’re not in the greatest of health, your policy might be a little pricier than someone who’s a little healthier, as your risk of passing away is greater.

If you’re older and are concerned about being asked to have a medical, or if you have a pre-existing condition, consider over-50s life insurance You’ll be able to find cover without disclosing anything about your state of health. The only drawback is that the pay-out you’ll receive will normally be lower with an over-50 policy, so ensure this is enough to cover your mortgage before you sign up.

If your beneficiaries make a successful claim after you pass away, the pay-out goes directly to them. It’s then up to them how the money is used.