The short version
- Decreasing cover follows a repayment mortgage down; level cover pays a fixed amount.
- Written in trust, a payout usually reaches the people you choose faster and stays outside your estate.
- Critical illness and income protection deal with the “what if I’m ill?” side.
- Unlike wills, protection advice is regulated by the Financial Conduct Authority.
Why it belongs next to your will
Your will might leave the home to your partner and children. But if the mortgage can’t be paid, the home may have to be sold. Life cover is what makes the plan in your will affordable for the people left behind.
Because Andy has spent more than twenty years in lending, we look at the borrowing and the cover together, so the amount and the term actually match.
The main types of cover
- Level term life insurance pays a fixed lump sum if you die during the term. Often used for family needs or an interest-only mortgage.
- Decreasing term life insurance pays out less as time goes on, roughly tracking a repayment mortgage. Usually cheaper for that reason.
- Family income benefit pays a regular monthly sum rather than one lump, until the end of the term.
- Critical illness cover pays out if you’re diagnosed with a serious illness covered by the policy.
- Income protection replaces part of your income if you can’t work through illness or injury.
Writing cover in trust
Most insurers let you put a policy in trust when you take it out, usually with a simple form. The payout then goes to your trustees rather than into your estate, so it’s normally quicker to reach your family and normally outside your estate for inheritance tax. It also means you can make sure the cover and your will point the same way.
Life insurance has no cash value at any time. If you stop paying the premiums, your cover will end. Your home may be repossessed if you do not keep up repayments on your mortgage.