What are the Benefits of Taking Out Life Cover on an Interest Only Lifetime Mortgage?

Benefits of life cover for interest-only lifetime mortgages exist. It would mainly provide peace of mind, knowing that should the worst happen the mortgage can be repaid in full and thereafter NO monthly mortgage payments are required. The interest only mortgage lenders will let the surviving partner remain in the home for the rest of their life; this is part of the terms and conditions. Therefore, your tenancy cannot be curtailed, nor can you have your house repossessed as long as the monthly mortgage payments are kept up.

The life cover premiums for the over 65’s pro rata will certainly be higher than those of younger applicants. However, given the loan sizes are usually much smaller then the overall cost is marginalised. The payments are usually fixed from inception which is similar to having a fixed rate on the mortgage, in that payments are guaranteed for the duration and you can budget accordingly.

What Types of Life Assurance Plans are Available?
The term of the plan is usually the key here as there are two options in the protection of an interest only lifetime mortgage. As the balance will remain level throughout, some form of protection whereby the life insurance also remains level throughout is therefore recommended.

The best advice in this situation would be to opt for a whole of life assurance policy. This will provide a level amount of life assurance for the rest of your life. Therefore, it has to eventually pay out, once the first person has died.

Post retirement, depending on the amount of life cover required, whole of life policies can prove expensive. You could have the option of a renewable whole of life plan where the cost is kept down initially, but would be subject to a review of premiums in the future. However, to maintain cover, the cost is likely to increase in the future. The other option on review would be to reduce the life cover but maintain the same premium.

A more cost effective proposal would be to consider a level term assurance plan. This wouldn’t be the ‘Rolls Royce’ solution, but could give a temporary reprieve at a time when finances won’t permit or a temporary measure is only required anyway. The level term assurance plan provides a level amount of life cover for a fixed term. As such the premiums are usually lower than the whole of life plan as they will cease at a pre-determined date in the future. There is no savings element; therefore, once the policy has expired there is no cash sum or money to be paid out.

Nevertheless, a term assurance policy does provide a cost effective means of protecting the interest only mortgage & should either party die during its term, then the lifetime mortgage will be repaid in full. This will leave the survivor with no mortgage balance and more importantly no further monthly payments to make to the lender.

As you may already notice there is a disadvantage to the term assurance policy in that someone named in the policy has to die for it to be accessed. When someone lives beyond the expiration date, this can put you back to a troubling situation with your interest-only lifetime mortgage plan.

It does not mean you are out of options. It is quite the opposite since you are in retirement. You can still convert a mortgage as long as you are under 75. This means you could change your interest-only lifetime mortgage to one without an expiration date like a roll-up or drawdown option. In this case interest accrues on the principle, but payment is not due until death. This can save you from having your home repossessed.

The second option is to speak with a home reversion provider or visit this website to see if you have enough value in your home to get the interest only lifetime mortgage principle paid off by selling a piece of your home. You may even have enough to get a lump sum for your retirement. It all depends on the home appraisal and the willingness of the company to offer a good percentage on value.

Assurance policies are certainly an important guarantee whether it is whole life or term to avoid having your home repossessed when a person named in the policy dies. It is worth paying on if you have the funds and wish to protect your home. It should not be your only consideration of course since you may out live the term or whole life policy.

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