Reducing term life insurance makes sense for mortgage cover

Life insurance provides customers with the peace of mind they need to live life knowing that if the worst happened their loved ones would be looked after financially. One of the most important financial responsibilities that a person has is their mortgage, which will not automatically get paid off if they die.

If a customer was to die without life insurance they would leave their mortgage to their loved ones, who would have to sell the house if they couldn’t afford to pay it. A life insurance policy provides customers families with the finances to pay off that mortgage, making sure that the home stays in the family, providing them somewhere to live, and a valuable asset to help them financially going forward.

Term life insurance is an ideal way to provide yourself with life insurance to look after your mortgage, as it covers you for the term of the mortgage, effectively only running out when you’ve paid your mortgage off in full.

One of the biggest advantages of term insurance is that the majority of customers outlive their policy, which makes it cheaper for everyone else. A standard term life insurance policy will pay out the same amount whether a customer died a week into their policy, or a week from the end of it.

If a customer was to take out life insurance at the beginning of a £200,000 mortgage, they’d most likely take out a £200,000 life insurance policy to cover the mortgage. They will pay off the mortgage however over the term of the mortgage, and if they died when the mortgage only had £50,000 left, their family would still get £200,000, which is great, but can also be deemed unnecessary.

Reducing term life insurance is cheaper as the amount it pays out reduces as the policy goes on. Most reducing life policies can be set to reduce in line with the mortgage, so if you died with £50,000 of your mortgage left you’d leave £50,000 to pay it off.

It’s cheaper because as the risk of you dying increases (as you get older) the amount the insurance company has to pay out get’s smaller.

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