MONEY COMMENT
Drop Dead & Pay Off The Mortgage

By Jane Mack (TMFJane)
August 18, 2003

If I were to shuffle off this mortal coil tomorrow, the mortgage would be paid off and my husband would be able to afford to continue living in our home. It would be the same for me if it were him who dropped dead.

Like many homeowners, our biggest single monthly expense is the mortgage and it's the one that would be most affected by the loss of a bread-winning partner. The idea of one of us having to cope, not only with grief, but also having to sell our home is unthinkable. That's why we've got a life assurance policy to cover the mortgage.

If you don't have dependents you don't need to think about this sort of thing – unless you want the mortgage paid off so you can leave it to someone in your Will. But anyone who would be in dire straits by the loss of a breadwinner should consider it.

There are two types of mortgage life assurance – level and decreasing. In the first instance, you get a fixed lump sum on the death of the first policyholder so, if the mortgage has been partly paid off during the term, you'll be able to pay the remaining debt and have some left over. With decreasing term assurance, you simply get whatever is left of the mortgage debt. Decreasing term assurance is usually cheaper than level term but if the difference in cost is small it's better to go for level so that you do have a bit extra left over.

Mortgage lenders will usually recommend that you take out such a policy but naturally they'll try and sell you their own version, which may well be more expensive. You're going to be paying this monthly cost for the whole term of the mortgage so make sure you shop around for the cheapest policy you can find.

If you've already got one and you've had it for several years, it might be worth seeing if you can find cheaper. As we're all living longer these days, rates have fallen for this type of policy over the years so if you bought your policy back in the Eighties or the early Nineties, you might be able to get a better deal now.

Don't count on it though. When I looked into this for ourselves, I couldn't figure out why the one we had already was so much cheaper. Then I realised that my husband and I are a lot older now and we're still smoking. They take that sort of thing into account when they're calculating how soon you're likely to drop dead!  

Find out more about Level and Decreasing Term Assurance and check out our Insurance Centre