Life Insurance When You Move To A Bigger House
Almost nobody reviews their life cover when they move, because moving is already exhausting and the policy appears to be fine.
And it is fine, in the sense that it still exists and would still pay. The problem is the number. It was calculated against a mortgage that has just been replaced by a bigger one, and nothing about the policy knows that.
This is the most common protection gap we see, and it is created by good news rather than bad.
The short answer
Moving to a bigger house normally means a larger mortgage over a longer term, but the life cover arranged for the previous house was sized to the previous loan and does not grow with it. The gap is the difference between the two mortgages, and it usually goes unnoticed because the old policy is still running and still paying out, just for the wrong amount.
What this changes
- The mortgage goes up, often substantially, while the cover stays at the old amount
- The term usually extends, so the debt now outlasts the policy you already have
- Monthly outgoings rise, which means the household has less slack if income stops
- A decreasing policy bought for the old loan is now falling while the new debt is larger
- Stamp duty and moving costs often eat the savings buffer at the same moment
- If the move came with a job change, any death in service may have changed too
The bit people miss
Decreasing term cover is where this bites hardest. It is designed to fall in step with a repayment mortgage, which works beautifully until you take out a new, larger mortgage. The policy carries on reducing on its original schedule while the debt has just jumped, so the two lines move in opposite directions. People assume a policy sold as mortgage cover automatically relates to whatever mortgage they currently have. It relates to the one it was sold against.
Increase The Old Policy Or Start A New One
There are two ways to close the gap and they are not equivalent, so it is worth understanding the choice rather than defaulting.
Adding a second policy for the difference leaves the original alone. That matters because the first policy was underwritten on your health at the time, and if your health has changed since, that older policy is worth keeping exactly as it is. The downside is two premiums and two documents.
Replacing the old policy with one larger one is tidier and sometimes cheaper per pound of cover, but it means being underwritten again on your health today, and it means cancelling cover you already hold. Nobody should cancel an existing policy until the replacement is actually in force and accepted, because acceptance and terms are decided by the insurer rather than assumed.
Check The Term, Not Just The Amount
The amount is the obvious thing to look at and the term is the one that quietly fails.
A move often resets the mortgage to a fresh twenty-five or thirty years, particularly if the payment needed keeping manageable. If the existing policy was written to finish with the old mortgage, it now ends years before the debt does, and the final stretch of the loan sits uninsured at the age when cover is most expensive to arrange.
So the review is two numbers rather than one: enough cover, and cover that lasts at least as long as the money is owed.
What usually fits, and why
The main thing to revisit. The question is whether to increase the existing policy or add a second one for the difference, and which is better depends on your age and health now compared with when you bought the first.
A bigger mortgage is a bigger monthly commitment, and the risk of not being able to pay it is far more often illness than death. The payment went up, so the amount you need to protect went up with it.
Pays a lump sum on diagnosis, which can clear a chunk of a larger mortgage at the point your income is least reliable.
Common questions
Does my existing life insurance cover my new mortgage?+
Only up to the amount it was written for. The policy pays what it says regardless of what you owe, so if the new mortgage is larger, the shortfall is the difference. A decreasing policy is worse again, because it keeps falling on the schedule set against the old loan while the new debt is bigger.
Should I increase my cover or take out a second policy?+
It depends on your health now compared with when you took out the first one. A second policy for the difference leaves the original untouched, which is valuable if your health has changed. One larger policy is tidier but means being assessed again today. We can price both and show you the difference.
Do I have to tell my insurer I have moved?+
Moving house does not usually affect a life or critical illness policy, because those are priced on you rather than on the property. The reason to make contact is not the address, it is the amount and the term, which were set against a mortgage you no longer have.
Should I cancel my old policy if I take out a bigger one?+
Not until the new cover is actually in place and accepted. Acceptance, price and any exclusions are decided by the insurer, so cancelling first can leave you with nothing if the new application does not complete as expected. Keep the old one running until the new one is confirmed.
My mortgage went up but my payments stayed similar. Do I still need more cover?+
Usually yes, because the payment staying flat normally means the term got longer rather than the debt getting smaller. The amount owed is what life cover is sized against, and a longer term also means the policy needs to last longer.
Cover that often goes with this
The gaps we most often find sitting next to this one.