What sort of Life Insurance do I need for an Interest Only Mortgage?

If you have an interest only mortgage then you want Life Insurance.

Life Insurance is 'level cover' - basically meaning that at whatever point in the policy you die, the payout will be the same. Life insurance will cover the capital you borrowed on your interest only mortgage.

Life policies include Terminal Illness cover for no extra cost, so if you become terminally ill and were not expected to survive more than 12 months, you will receive a full payout.

With an interest only mortgage, the amount of cover you need remains the same because the capital doesn't get repaid until the end of the mortgage term. This means that your insurance policy must retain the same payout value, and that's precisely what level cover Life Insurance does.

If you have a Joint mortgage then your cheapest option is to have a Joint insurance policy (most mortgage lenders will insist on both parties being insured).

With mortgage life insurance, Joint policies are always written in what is known as 'first life'. This means that the policy will only pay out once - so if one of you falls terminally ill or does, then a claim can be made. After that the policy ends and no more claims can be made.

All proceeds from insurance policies are not taxed.

Please note:
If you want insurance that would cover your monthly mortgage payments if you can't attend work through sickness, accident or unemployment, then you want Mortgage Payment Protection Insurance.

If you would like insurance that repays your outstanding mortgage capital if you become seriously ill, you need Critical Illness Insurance.