keeping life insurance sold home

We sold our home and we're now renting until we can afford to buy a house. We've kept the life insurance we got with our mortgage going. Our thinking is in case something happpens to one of us we'll have a lump sum. However it's the kind that decreases with the outstanding mortgage so are we being idiots not to get a new policy?

Depends on what the policy would pay out at the moment, the rate at which that will fall, the cost of the premiums and your specific needs for cover. I would be inclined to keep mortgage protection life assurance and general life assurance separate and just choose the most basic policy for the former.

I would imagine that the policy states that the insurer will pay off the remainder of the mortgage if one of the insured dies. Technically, as your mortgage balance is 0, the insurer would pay exactly that.
You may be able to convert the policy to a regular term life policy, but you'll have to check that with the insurer/broker.

Chris said:

I would imagine that the policy states that the insurer will pay off the remainder of the mortgage if one of the insured dies. Technically, as your mortgage balance is 0, the insurer would pay exactly that.
You may be able to convert the policy to a regular term life policy, but you'll have to check that with the insurer/broker.

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As the mortgage provider is not entitled to the proceeds to the policy any longer, you should get them to sign a deed of release of assignment which will tell your mortgage protection provider that they are no longer the beneficiaries of the policy and any benefits should go to the policy owner ie/you and partner.

Mortgage protection policies do not have continuation options on them, only level term life policies do so converting will not be an option.

Short term it may be worth keeping the policy as it will mean you do not have to be underwritten but as you say long term the policy benefits will decrease as each year goes by.

As Clubman mentioned its probably ideal to keep your personal cover separate from your mortgage cover. You will most likely have to take out a new mortgage protection policy should you decide to purchase again so there really is no point in keeping the policy unless you see it as short term cover. Remember life policies are cheaper to take out the younger you are, so having a separate protection policy that you intend to keep long term is a good idea to start sooner rather than later to save on premiums.

To sum up, it really depends on how soon you intend to enter the housing market again and whether or not you feel you need additional life cover or not.

thanks for that folks. We only intended having the mortgage life insurance long term (maybe that's foolish?). We hope to buy again in the next two years. While we are renting I want to avoid a situation that happened a family member while they were renting, mother died suddenly and father had to finance house/childcare etc solo. Had they owned their house at least they would have had the roof over their head paid for. I want short term insurance that would cover the cost of buying a house.