Mainly it would 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 than 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 protection whereby the life insurance also remains level throughout is therefore recommended.
The best advice in this situation would therefore 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.
Lifetime Mortgage Cover
Discussing life cover plans in detail brings to mind a few things about lifetime mortgages that could be enhanced with proper life insurance. Lifetime mortgages take out equity from your home allowing you to use it as you need. It is a way to get cash in retirement. Typically interest only lifetime mortgages are great because you pay off a little of the product, while keeping the capital sum the same. Other plans do not work in this manner. The interest accrues onto the capital sum and inheritance can start to disappear quickly.
If you have proper life cover then there are two options in how to use the funds. The first is to use the money as a way to pay off the capital sum and interest for the lifetime mortgage. Your beneficiaries would make the payment as part of the estate settlement and the house can be kept. The other option is for the life insurance to be the inheritance, while the house is sold to cover the lifetime mortgage you took out. In either situation you are able to provide your beneficiaries with inheritance.
Seeking Proper Advice for Both Products
If you truly want to make certain that your family is covered then taking out a policy that will ensure this is the better choice, whether you have a life time mortgage interest only plan or one of the other choices. Before you stop shopping and purchase a lifetime mortgage along with insurance to cover a party not named in the mortgage or for inheritance it is a good idea to speak with a representative and get your questions answered.
Nevertheless, a term assurance policy does provide a cost effective means of protecting the interest only mortgage and 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.