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20th September 2018
A common concern from couples who jointly own the home they live in is what would happen in the event of first death leaving the surviving partner with all the financial responsibilities including payment of the mortgage. We asked Richard Rutherford, Mortgage Manager, to give his take on this issue.
The very simple solution is to arrange a joint life mortgage protection plan. This is a form of decreasing life insurance designed to pay off a mortgage in the event of either death before the end of the mortgage term. The lump sum assured would reduce in line with a mortgage. Having this sort of cover in place means that, because the mortgage would be paid off on the death of one joint owner, the surviving joint owner wouldn’t need to worry about making mortgage payments any more.
Additional protection can be arranged to provide extra funds to cover household bills, bringing up children, school and university fees etc:
Family Income Benefit
Family income benefit is a type of life policy that runs for a certain period (often the same term as the mortgage) and pays out a regular tax-free income in the event of death. The income is paid out from the time of death until the policy term ends. This means that if death occurs 7 years into a 10-year policy, only 3 years of income will be paid out. Alternatively, if death occurred in the first year of a 10-year policy, 9 years of income payments would be paid.
The benefit of this type of insurance is that the income paid can be set at a level that would ensure that the monthly bills are covered if the worst was to happen.
The drawbacks of this type of policy is that the mortgage itself would not be repaid as a lump sum does not get paid out.
Level term insurance
Level term insurance is similar in nature to decreasing term insurance described above (in that it pays out a lump sum on death over a set term), the main difference is that the sum assured remains constant throughout the term instead of reducing in line with a mortgage balance.
The benefit of this type of policy is that whether you have 20 years left on a mortgage or 1 year, the same amount of money would be paid out. This could result in having funds left over once the mortgage has been repaid to create an emergency fund or pay for school fees etc.
Reference – BL033 – Aug – 18
