When you take out a mortgage we would always recommend you take out appropriate life insurance too, so that you know your monthly mortgage payments are covered if things go awry.
If you’re buying on your own, a single life insurance plan will probably do the trick, but if you’re going into joint property ownership, a joint plan may be more appropriate. So, which is best for you?
Property ownership
When it comes to joint ownership, there are two main types:
- Joint Tenant
Where both individuals each own 50% of the property and have equal rights over it – no matter who contributed what in terms of a deposit. Married couples and those in civil partnerships would typically go into joint tenancy, as it means that if one person dies, their share automatically passes to the other – irrespective of the terms of any will in place.
- Tenants in common
Where each owns a separate and distinct share of the property (and not necessarily an equal share). This might be the best option for co-habiting (but not married) couples, parents buying for their child, or relatives or friends buying together. This set-up means that if one of the tenants in common dies, their share forms part of their estate, rather than automatically going to the other tenant.
Single or joint life insurance?
Given the differing types of property ownership, it’s important to look at your individual situation before taking out life cover.
A policy taken out on a single life basis covers one person only and will pay out the sum assured if the policyholder dies within the term of the policy. A joint policy covers two lives and will normally pay out on a ‘first death’ basis, at which point the policy will end. There are pros and cons of both types of cover – and you should seek advice so you know you’re getting the cover that’s right for you.
Things to think about
Budget – One joint insurance life policy could be more affordable than two single life insurance policies.
Cover – Do you both have exactly the same life insurance need? Would two plans be more appropriate?
A joint life insurance policy only pays out once – The proceeds could go to the surviving partner (and would be tax-free) so that they could pay off the mortgage. However, they would be left without any life insurance and applying for cover later in life can be expensive.
Relationship break down – It’s possible that the insurance provider would not be able to divide a joint life policy into two single policies. If you have two separate policies, neither will be affected in the event of a split with the joint owner.
If you need life insurance to protect your mortgage, please talk to us before you buy and we’ll advise on cover that’s tailored for your circumstances.