Mortgage protection policies with conversion options

[gilboy]

Just trying to figure out if its worth paying a couple of extra quid on my mortgage protection policy to get this conversion option. Basically the conversion option, allows you to extend the term of the policy at the age of 65.

I have a decent enough deal on the policy(i think!):

• dual policy
• 250k and death of partner 400k on death of myself
• Level cover
• Term 23 years

The above is costing me 40 bucks. They want another 5 for this conversion option. I am pretty sure though at the age of 65 if I present myself to Insurance company and say I want to extend the policy they will allow me to extend it alright but charge some crazy figure(i.e. couple of hundred per month)

Anybody got any experience with policies with this conversion option? Would be interested in hearing some other peoples thoughts?

Thanks

 

[Sumatra]

Mortgage protection is a type of policy where the cover decreases roughly in line with the outstanding balance on your loan.

The type of policy you mention here is a term life assurance policy which it appears you are using as a form of mortgage protection. One would purchase level term to cover an interest only loan.

But, you have split the cover so I assume you are trying to use it to cover your mortgage and in the event of death the surplus going to your estate as a life assurance benefit (remember the life assurance to your estate would be the difference between what is owing at the time and the sum assured on the policy). If this is so then the fact you say this policy is 'level cover' would worry me because unless you have already factored in the eroding effects of inflation over the 23 year term then the real purchasing value of the cover in years to come will be very disappointing. Most term assurance policies have an indexation option.

Conversion option is worth considering (but not for a loan at age 65!) if it doesn't cost too much extra.

Personally I prefer to cover the loan requirement with the most cost effective policy and then look at my own needs for life assurance as a separate issue with a separate policy. I tend to have a what's theirs is theirs and what's mine is mine attitude. One may argue rolling it into one policy may work out slightly cheaper but it really lacks flexibility that you may need in the future. It is very hard to get things right when you are trying to project 23 years into the future. Don't spend anymore than you have to.

 

[Leprechaun]

The conversion option should be only 5% extra on term assurance policies, however some companies will charge more. It will allow you to continue on cover usually up to age 80, however the longer you leave it to convert, the more expensive the premium will be. You will be charged the normal rate for a person of your age 'at the time of conversion'. To get an idea of potential cost, you could get quotes for the level of cover you have chosen for someone say age 50, 55 and 60 today, and chose a term of 5, 10 or 15 years. This will give you an idea of cost however rates will inevitably change over this period to some degree. It might be worth it if potentially you have medical problems down the line which could cut your life expectancy. In this instance you could pay normal rates for a higher, or even uninsurable, risk.