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Decreasing term life assurance to cover mortgage

(4 Posts)
Koala2 Sun 17-Apr-16 09:35:21

Hi, we took out a decreasing term life assurance policy to cover the entire capital sum of our mortgage in the event that either myself or husband were to die during mortgage term. The policy runs for the exact duration of our mortgage. Each year the sum insured on the policy decreases by 7% (I think this is what the 7% refers to?). Our mortgage interest rate is 3.19% and we are fortunate to be able to overpay. However - I have just received the first assurance policy statement and there is a gap between the insured sum and the capital balance remaining on the mortgage already (excluding mortgage exit fees etc, which would make it an even bigger gap). We have only had the policy for 18 months, so I am assuming the gap will increase over time.

Is this how these things normally work? How have I got this wrong?? Should I have been looking for a % decrease on the policy closer to our mortgage rate? Thanks for any advice anyone can offer.

LordEmsworth Sun 17-Apr-16 09:42:10

Eh? That sounds wrong. The policy should cover the amount of your mortgage - unless you specified when you took it out that you wanted it to go down faster than your mortgage does.

How did you take out the policy - from an adviser, or did you buy it yourself and choose your own cover? If from an adviser, I would go back to them and ask them to explain. If you chose it yourself, then you need to look at the KFI you got when you took out the mortgage, which should give you a good idea of how much the mortgage will decrease over the term (in the early years, it will be a slow decrease, but should pick up as you pay it off over the years).

AuditAngel Sun 17-Apr-16 09:43:47

Just to clarify, which way us the gap? You have said you are overpaying, but this would not be built into the policy.

Koala2 Sun 17-Apr-16 13:18:12

The gap is not in our favour! Does anyone know about how these policies calculate the decrease?

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