Mortgage life insurance

When you buy a life insurance policy, you could be given two choices of premium (which is the official name for monthly insurance payments). It can be guaranteed or reviewable.

If your premiums are guaranteed, your insurer will never change the price, so you'll know what you'll be paying over the life of the policy. This can be good if you just want to know how much you will be paying every month while you have the policy.

Reviewable premiums, on the other hand, cost less at first, but your insurer can hike costs later on, meaning a cheap deal can potentially become costly as you age.

It's important to be honest about any information you provide and to ensure any policy is fit for your needs – and will cover you if the worst were to happen and your dependants needed to make a claim.

Likely things you'll need to disclose when getting a quote for a policy include your age, whether you smoke, your occupation and your medical history. The insurer then uses this information to determine whether it will cover you and the price.

If you're comparing quotes yourself, when you go via a {discount broker}, you'll usually answer a few basic questions to see initial prices, and once you want to apply, you will then have to disclose much more detailed information if you then go through to the insurer, which could affect the price/the decision to insure you.

As each insurer has its own rules on pre-existing medical conditions, if you've a complicated medical history, it's worth getting advice before you buy. This is helpful as brokers tend to know which insurers will cover your condition(s), and at the best rates.

If you're over 50, you can get a policy with guaranteed acceptance – but it's much more expensive (and it could cost you more than it would pay out).

If your health issues make it difficult to get cover, or even at an affordable price, and you are 50 or over, an over-50 policy is an alternative which doesn't require any health questions and there's guaranteed acceptance up to age 90. Yet to compensate these are much more expensive, you can't claim in the first one or two years and you could get back less than you pay in.

For full information and warnings, see our Over-50s' Life Insurance guide.

Life insurance policies can either be taken out to cover just you – a single policy – or yourself and your partner – a joint policy – how they pay out at claim time differs.

A joint policy is often cheaper than two separate single policies, however, it only provides one payout, usually on the death of the first policyholder, after which the cover ends. This is usually best suited if your partner is your only dependant and you'd have no one else to leave a second payout to.

However, if you had a joint policy and were to later split with your partner, you'd need a new single policy, and this could be more expensive as it would be based on your new age and health.

Taking out two single policies means you get two payouts but is usually more expensive, but here you would get two payouts if you were both to die during each policy term (in other words before the agreed end date of the policy). Equally it covers you personally, so works independently to whether you are still together with your partner or not.

If you die with an active life-insurance policy, the payout forms part of your estate, which could mean it's hit with a huge whack of Inheritance Tax. Yet, in many cases it's possible to avoid this by writing the policy in trust, if it's done at the time the policy is taken out.

If the policy is written in trust, the insurance pays out directly to your dependants, so it never becomes part of your estate, which avoids inheritance tax and often speeds up the payout.

If you know what you're doing, you can write the policy in trust yourself. If not, seek advice from a top advisory broker or see our guide on Independent Financial Advisers.

This is aimed at the older adults who may be priced out of trying to buy a traditional life insurance policy – where they work out if they'll accept you and how much you'd pay based on a number of factors, including your age and health.

We have touched on this when discussing pre-existing medical conditions, but if you’re over 50 and struggling to get standard life cover at an affordable price due to health issues, over-50s life insurance plans guarantee acceptance – but the trade-off is how much it will pay out against how much you've paid.

An over-50s' policy can offer guaranteed acceptance up to age 90, even if you have a medical condition. Yet this type of cover can work out expensive as some want you to keep paying in until you die, so your beneficiaries could get back less than you pay in. See our Over-50s' Life Insurance guide for more.

Life insurance usually gets more expensive with age, so switching doesn’t always lead to savings – especially if you've developed health issues since taking out your policy. But it's still worth checking if:

• You bought your policy through a mortgage lender – Lenders often charge more as they may only deal with a small number of providers. If your health hasn't changed much, you might save by comparing prices and switching.

• You’ve quit smoking or changed jobs – Non-smokers and people in low-risk jobs pay less, it is a fact. If you’ve been nicotine-free for at least a year (and in some cases, up to five), it’s worth getting a quote. Just don’t lie – it could invalidate your cover.

• You’ve remortgaged or paid down your balance – If you now owe less, you might not need as much cover. A new policy with a lower payout and shorter term could cost you less.

MSE Eesha said, “I took out cover three years ago for £23 a month. I then ran some new quotes and found the SAME policy with the SAME provider for £9 a month. Over the 15 years that’s left, I’ll save £2,520.”

Many things can happen during the lifespan of the policy, and while your broker or mortgage insurance company may be doing well now, it could be a different scenario 20 years down the line. Here's how you could be affected:

• If your insurer went bust. If your provider goes bust, the Financial Services Compensation Scheme (FSCS) will try to find another insurer to take over your policy or issue a substitute one. Equally, if you've ongoing claims, or need to claim before a new insurer is found, the FSCS should ensure you're covered. 
  

• If your broker went bust. The only payment you're likely to make to a broker will be the fee for arranging the policy, which is often no more than £25. 

In the unlikely event your broker went bust after you paid it but before your insurance was arranged, the chance of you getting your money for the fee back is slim.

The FSCS would be able to help with any premiums lost as a result of a broker going bust, as these payments are ring-fenced, but this is unlikely to extend to broker fees.

Put simply, it's an insurance policy that pays out a set sum if you were to die while it's in force. Its aim is to provide financial support to those you leave behind, to prevent the loss of your income from causing a money crisis. 'Level term' is the simplest type of life insurance and the name tells you all you need to know...

Level: When you take out a policy, you determine how much you'd need it to pay out – for example, £200,000. This remains 'level' – meaning it's fixed at that amount – for the duration of the policy.

Term: You choose how many years you'd want the policy to cover you for – for instance, 25 years. You usually can't remain covered past the age of 80, though this maximum age does vary by provider. The more cover you get and the longer the term you want, the more it costs. You pay via a monthly premium which continues until the policy either pays out (if you were to die during the term) or the term ends.

This provides a monthly tax-free payment for the length of the policy term, eg, £10,000 a year for 10 years. So if you died five years into the policy, your dependents would receive just over £800 a month for each of the remaining five years.

As the yearly amount doesn't roll over, the longer you live, the less the insurer has to pay out, so policies tend to be cheaper than level-term.

This is aimed at the older adults who may be priced out of trying to buy a traditional life insurance policy – where they work out if they'll accept you and how much you'd pay based on a number of factors, including your age and health.

An over-50s' policy offers guaranteed acceptance up to age 85 or 90, even if you have a medical condition. Yet this type of cover can work out expensive as you have to keep paying in until you die, so your beneficiaries could get back less than you pay in. For full information and warnings, see our Over-50s' life insurance guide

Unlike level-term – which runs for a set length of time and usually alongside a mortgage – this type of cover runs until you die.

These are often (but not always) investment-linked life insurance policies, mainly used to mitigate inheritance tax. In other words, the payout amount should cover the inheritance tax bill on death, and the policy runs out when you die, instead of after a fixed time.

Due to this, these are usually an expensive option.