Equity Release Mortgage Protection 2024
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Equity Release Mortgage Protection 2024
I’m going to start by being very clear that this blog is not about advice surrounding the arrangement or suitability of an equity release mortgage for someone. That should sit with an adviser that is specifically qualified to give you advice on this type of product. Not me!
Equity release mortgages can be incredibly beneficial but as with most things they can also go very wrong if not done properly.
My mum and dad are currently renovating their house to make it suitable for him with his diagnosis of Parkinsons and it can be surprising how quick the costs can add up. It’s important to make sure that get advice from a qualified adviser who can let you know exactly how much money to release from your home, you don’t want to take out too much or too little.
Equity release mortgages are where you release some of the value in your home, so that you have access to money to do something that you want. You get a lump of tax free cash that you can with as you please. People may do this to:
- Pay towards care home fees
- Adapt the home to allow them to receive care at home
- Build the conservatory you’ve always wanted
- Buy the flashy car you promised yourself when you retire
But there can be other reasons to. The mortgage is classed as a lifetime mortgage and will remain in place until you die. When you die your loved ones will let the lender know that you have passed away and the lender will want to be repaid the mortgage value. This can often mean that the home needs to be sold and part of it’s value paid to lender within a set period of time.
But you don’t always have to sell the home and life insurance can be a useful way of planning for this.
Life Insurance for Equity Release Mortgages
When you apply for life insurance your health can play quite a role in which insurer is right for you, the type of life insurance you can get and the cost that the life insurance will be.
If you have taken out an equity release mortgage because you are not well and are adapting your home, it might be that you need to be quite picky about the insurer that you approach for life insurance. This is because your health could mean that some insurers might increase the premiums on the life insurance policy and some might not be able to insure you.
There are two main types of life insurance to protect against an equity release mortgage:
- Whole of Life insurance – the one you ideally want to get
- Term Life insurance – not perfect for what you need, but often better than nothing
Whole of life insurance does what it says, it lasts the whole of your life. This is perfect for an equity release mortgage which is also designed to last your lifetime. Whole of life insurance is not the cheapest life insurance you can get, so some people decide not to get it. But there are ways to try and bring the costs down. You can take out a life insurance policy that has less value than the equity release mortgage to give your family a bit of help while they sort the sale of the home, or you could consider term life insurance.
Term life insurance is not the first thing to consider for an equity release mortgage, but it can be useful to some people. With term life insurance you decide how long it lasts for. Insurers can potentially arrange term life insurance that lasts until your 90, 85, 81, 78, basically any age you can think of up to age 90. Term life insurance is far more affordable than whole of life insurance, but you must understand that if you are still alive after the age that you choose, the life insurance policy will not pay out and there will be no protection for the equity release mortgage.
You might also wonder about Over 50s Cover which is a type of life insurance. You can potentially look at this but they are often quite low sum assureds, around £30,000 or less. This might be fine for you but there are some specific quirks with Over 50s cover that you can read up about here.
Medical Underwriting for Equity Release Mortgages
When you apply for whole of life insurance or term life insurance with most insurers they will want you to answer some medical questions, to decide if they can offer you life insurance and what the cost will be.
This will include things like:
- Your age
- If you are a smoker
- Your height and weight
- If you have had any serious medical conditions such as cancer, heart attack or stroke
- Other medical conditions that you might be experiencing
- Any outstanding tests or investigations that you have
- Serious medical conditions that your parents or siblings before the age of 65 – they have specific options for you if you are adopted
It is from this information that they will then decide if you can have life insurance with them. Depending upon how much life insurance you want and how old you are, you may find that the insurer asks to see a report from your GP or for you attend a medical (the insurer usually pays for this).
There are life insurances you can arrange without this but they are not usually as good value. There is Over 50s cover which has an exclusion for claims relating to pre-existing conditions usually for the first 2 years, it can be less depending upon the insurer that you use. Or there is what is known as non-medically underwritten life insurance. These will usually exclude claims relating to pre-existing conditions forever, which is something you should really speak to an adviser about before arranging.
The Best Insurer to Protect Equity Release Mortgages
Unfortunately there is no specific insurer that is the ultimate go to for life insurance for equity release mortgages. Your age can be quite a specific factor in which insurer you can use. At the moment there is barely any insurers that will insure people for life insurance once they are 80 years old. So the first hurdle can often be making sure that your age matches what insurers are prepare to look at.
Then assuming that is ok, it’s then if your medical history is something that the insurer is able to consider. If you have any medical conditions they will probably ask you what you have been diagnosed with, when your diagnosis was made, any treatments or medications you are taking and how it affects your day to day living.
The majority of insurers in the UK are currently unable to insure a person that has active Alzheimers or dementia, even if there is a power of attorney in place and someone is acting on their behalf. For many other health conditions insurers can offer life insurance.
Our award winning advisers will help you chose the right life insurance policy to match you and your needs. You have spent years building value in your home, we will make sure that we protect it for you.
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