In the interest of cutting household bills and monthly outgoings, mortgage holders have been restructuring their mortgages and switching to interest-only payments. Although this does have a great impact on their monthly financial outgoings, most have neglected to look at their mortgage protection cover.
A gap is forming whereby the life cover will not clear the interest-only mortgage in the event of your death.
Most life insurance policies will run in line with repayment mortgages and will decrease each year as the mortgage decreases. If the mortgage holder switches to an interest-only mortgage the mortgage does not decrease each year, it remains the same and so should their life insurance policy (level term assurance policy). If they do not review their life cover, every year they ignore it, the gap will increase.
Caledonian Life said that if a person bought a house with a mortgage of €300,000 in 2007 but switched to interest only terms in 2008, then the deficit between the sum insured on their mortgage protection life cover and the amount outstanding on the actual mortgage, could now three years later be as much as €27,522.
If you have changed to an interest-only mortgage it’s essential you look at your life cover policy to make sure it is still sufficient to cover you and your home in the event your death.
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After reading this article was really informative, this is great as I just brought a new house.
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