Best mortgage protection option?

Callainach

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Hi folks, looking for recommendations on how to approach mortgage protection insurance. Myself and partner are both in our mid-thirties and getting a 28-year mortgage which we plan to overpay pretty much from day one. No kids at the moment but planning on having them in next 3-4 years. I've heard advice just to get the basic/cheapest mortgage protection possible to satisfy the bank and take out a separate life policy to cover the family once the kids come along. But would a convertible MPP make more sense to avoid future medical underwriting? Also, how would a basic MPP be affected by overpaying the mortgage?
 
Basically when it comes to a mortgage, you are in reality paying for protection for the bank rather than yourself. They are the ones who benefit since they don't have to deal with the hassle if you have a policy that will pay them out cash. So the question is how much do you want to spend on cossetting the bank? Overpaying doesn't really have any affect.
 
Of course, only the bank benefits, because there's no benefit for the surviving spouse when one dies...
Fair point, but the bank is still the primary beneficiary, kicking out grieving widow(er)s is never a good commerical look ;)
 
If it was me i would probably go for a 30-year, dual, non-indexed, convertible, term policy and have the bank noted on it. I wouldn't bother with a reducing MPP unless money was really tight.
 
I went with a reducing policy.

Essentially you want to insure yourself or your spouse against having any mortgage payments after your (or their) death.

A non-reducing policy is just slowly increasing life cover. Sure it's more or less a similar expense over time.

But I have never understood why you would want life cover to increase as an exact function of your mortgage decreasing. You should purchase that kind of life cover depending on your age, health, desired level of income, no of children in education, etc.
 
Assuming no other life cover in place, I would be looking at a figure in excess of the mortgage. Ok, so there is a net increase in your life cover as you mortgage decreases but as it's non-indexed inflation will nibble away at the value of the insured sum. It will simplify switching mortgage or if getting a bigger mortgage in the future. It provides protection for your family as it grows . . and you get it locked in now, while you're both healthy.
 
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But would a convertible MPP make more sense to avoid future medical underwriting? Also, how would a basic MPP be affected by overpaying the mortgage?
Convertible makes sense in general but not with a reducing MPP as in the end there is nothing to convert. Overpaying mortgage makes no difference to reducing MPP as it just operates on a stated sliding scale. If you overpay and you have a claim against the policy you'll get the balance once the mortgage is cleared.
 
Thanks for all the replies, looks like there's no right/wrong answer to this one! Leaning towards just getting basic dual life mortgage protection only. Worst case scenario we both die early in which case kids get a fully paid-off home and lump sum which reduces the closer they are to their twenties. We would have other assets to leave in that case anyway (e.g. death in service benefit, pension). More realistic scenario is we both outlive the mortgage since we will be overpaying aggressively so prob not worth paying an insurance company any more than we need to.
 
Thanks for all the replies, looks like there's no right/wrong answer to this one! Leaning towards just getting basic dual life mortgage protection only. Worst case scenario we both die early in which case kids get a fully paid-off home and lump sum which reduces the closer they are to their twenties. We would have other assets to leave in that case anyway (e.g. death in service benefit, pension). More realistic scenario is we both outlive the mortgage since we will be overpaying aggressively so prob not worth paying an insurance company any more than we need to.

Statistically incredibly rare. More likely that one of you will die, but much more likely that one of you gets an illness or disability that reduces your earning capacity before retirement.

IMHO income continuance cover is as important as life cover. Look in to what your employer provides and see if you need something else.
 
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