A life insurance policy helps ensure that, if you die, your loved ones will be provided for.
Many people first take out a life insurance policy when they get a mortgage.
It can provide peace of mind that, should you pass away before the mortgage is paid off, your dependants won’t struggle to pay off the remaining amount owed on the home loan.
The two main types of mortgage life insurance are:
As the years pass and your circumstances change, however, it’s important you review your life insurance cover to ensure you have the right amount of protection in place.
If you’ve moved home and increased your mortgage, then your current policy might not be sufficient to cover paying off the larger loan if you pass away.
If you’ve moved to a larger home, with a bigger mortgage, it’s important to review your life insurance cover.
With a bigger loan to pay off, your current life insurance policy may fall short. That means your loved ones would be left to deal with the debt after you’ve gone.
If they can’t cover the remaining mortgage payments, they could lose their home.
To increase your life insurance so that it covers a larger mortgage debt, you have a few options.
You can talk to your current provider and look at increasing the cover on the policy you already have. Or take out an additional, supplementary, policy with them.
Or you might want to shop around and use a new provider.
If you decide you want to use a new provider, then you can either take out a ‘top-up’ policy with them to run alongside your original insurance plan, so you get the full amount of cover that you need.
Alternatively, you can replace your existing policy with a completely new one from a new provider and cancel the old plan.
It’s a good idea to investigate all options and to get advice before deciding.
Many life insurance providers give you the flexibility to change an existing policy to get the new level of cover that you need. But not all do.
A policy that has a ‘guaranteed insurability option’ allows you to increase your cover after certain life circumstances without having to provide any further medical information or details about your lifestyle.
These circumstances include things like getting married or entering a civil partnership and becoming a parent, as well as increasing your mortgage.
There’ll usually be terms and conditions on making changes, though.
For example, in most cases, you must request to increase your cover within a specified time period from the date that you moved home and took on the new mortgage - often within three or six months.
There’s normally a cap on the amount you can increase your cover by, too. It’s usually limited to the amount the mortgage has increased by and often by up to 50% of the original amount.
Additionally, there’ll probably be age restrictions. If you’re over a certain age when you want to change your insurance, you may have to undergo new medical underwriting.
Plus, there are limits on how many times you can use this option throughout the term of the policy (normally no more than three times).
If your current provider doesn’t allow policy changes, you could take out an additional policy with them that runs alongside it to make up the shortfall.
You may be happy to take out an increased level of cover with your current provider. But if that’s not possible, or you feel you’re not getting a good deal, try shopping around or consulting a financial adviser, to see if a new provider is a better option.
A new insurer could provide you with a supplementary policy to top up the cover you have with your current provider. Or you can set up a completely new policy that meets your increased needs and cancel the old policy.
Importantly, remember that you may not be accepted by a new insurer and it could end up costing more because of your current age and any health issues. So, you should only cancel an existing policy when you’ve investigated all options and when a new one is in place.
You’ll want to think about:
If you decide to get a new policy to replace your original life insurance, then you’ll need to contact your provider, either by phone, online or by post to cancel your policy. Details of how to cancel will be on their website.