Joint Life Mortgage Policy
Do you have a mortgage life insurance policy?
Taking out a policy to cover a mortgage is probably the single biggest reason for which people take out life insurance.
Where two people have a mortgage, it is typically the case that they have a joint policy. A joint policy is one shared policy covering two people.
However, a joint policy can cause serious problems:
Just some of the problems associated with a joint life policy
- If both insured persons die, for example in an accident, only one pay out is made
- If both insured persons die, 40% of the pay out could be lost in Inheritance Tax leading to an inability to repay the full mortgage
- Children of a former relationship may be entitled to some or all of the pay out
- For unmarried couples, on the death of one, half of the pay out could be deemed by HMRC to be part of the estate of the deceased partner and could therefore be subject to Inheritance Tax
- If a joint policy includes critical illness cover, then on the death or critical illness of one of the insured persons, the survivor loses his or her life cover and critical illness cover
- If a joint policy includes critical illness cover, it may also provide critical illness cover for children. If this is the case, then on the death or critical illness of one of the insured persons, critical illness cover for children would immediately cease
- In the event of separation, a joint policy may be extremely difficult or impossible to unpick, forcing you to either carry on paying the full cost of the joint plan or just cancel the whole thing
You can avoid these problems and gain many benefits by a simple alternative: for each of you to have your own, individual policy.
If you think this will be double the cost of a joint policy, you’re wrong.
The combined cost of two individual policies is generally only a fraction more than that of a joint policy, sometimes only pence more.
Under individual policies, you’d each be insured for the full mortgage amount; this offers many advantages.
Some of the advantages of individual policies over a joint policy
- If both insured persons die, for example in an accident, both individual policies pay out. Compared to being insured under a joint policy, this means that twice as much is paid out
- If both insured persons die, and if Inheritance Tax is due, then even after the tax is paid, there will still be more than sufficient to pay off the full mortgage
- Children of a former relationship will not be entitled to any of the pay out. You can, of course, make separate and specific provision for them
- On the death of one insured person, the survivor will still be insured
- For unmarried couples, on the death of one, none of the pay out would be deemed by HMRC to be part of the estate of the deceased partner and would not, therefore, be subject to Inheritance Tax
- If an individual policy includes critical illness cover, then on the death or critical illness of one of the insured persons, the other person continues to have his or her critical illness cover and death cover
- If an individual policy includes critical illness cover, and assuming it includes critical illness cover for children, then on the death or critical illness of one of the insured persons, children continue to be covered for critical illness under the surviving parent’s individual policy
- If an individual policy includes critical illness cover, and in the event of a claim for children’s critical illness cover a double benefit could be paid out
- In the event of separation, having individual policies provides flexibility that is not possible with a joint policy
If you have a joint policy and would like a free, no-obligation appraisal, or just for a quick quote on the cost of having individual policies, call me or contact me by using the enquiry form below.
I provide a full service from start to finish. I sort out out everything to ensure your cover is correctly set up and will look after your family.
Please note, it is very important that you do not cancel any existing cover until a review has been completed and if necessary, a new policy set up.