Q3. We purchased a life insurance policy when we took out our first mortgage. We have moved house and now have a larger mortgage over 25 years. I am still paying premiums on the existing policy. Do I need to take any action? SM, Newtownards
Answer; Yes is the simple answer. Get out your policy and find the page which details the cover you currently have. If your cover is a Mortgage Protection Plan, it may well reduce each year in line with the reduction in the outstanding debt for your original mortgage. You might find a schedule which details the level of cover at each plan anniversary.
In many cases, people with repayment mortgages took out reducing cover plans which should repay the outstanding balance of you mortgage if you die, or if included, become critically ill. If you have moved house and taken out a new mortgage over a further 25 years, then it is highly likely you need to take out new cover.
You should consider fully protecting your mortgage debt in the event of your death to ensure your partner can live on in the house debt free should you die. This is important because if it takes two incomes to repay the debt now and one income ceases, what is the impact on the survivor? It is also worth considering whether you need any additional cover to protect other debts or to provide for your children in the event of your death.
Also, think about protecting your debts against suffering a serious illness. Statistically you are more likely to be ill than die. A serious illness may affect your ability to work and income could stop. If your employer does not provide you with sick pay, in the event that you are off for a long period, how do you meet your mortgage payments and household bills. It may be worth applying for an Income Protection plan which is designed to pay you a regular income if you are ill and unable to work.
This is a good opportunity to sit down with a qualified Independent Financial Advisor and discuss your current circumstances, look at your current protection policies and get your advisor to cost out various protection options open to you.
Don’t stop your current cover until your replacement cover is up and running.