Do I need to change life insurance when I remortgage?

What does remortgaging mean?

MoneyHelper describes remortgaging as replacing your existing mortgage with
a new mortgage from a different lender while remaining in your current home.

This is different from simply taking another deal with the same lender.

Three terms worth distinguishing

From a life insurance perspective, the label matters less than the
financial change.

Whether you remortgage, transfer product or take a further advance, ask:

• Has the amount of debt changed?
• Has the mortgage term changed?
• Has the repayment method changed?
• Has the number of borrowers changed?
• Have my dependants or wider financial responsibilities changed?

Is life insurance linked to your mortgage lender?

Usually, no.

A normal personal life insurance policy is generally a separate contract
between you and the insurer.

Your mortgage is a separate contract with your mortgage lender.

Current Aviva guidance, for example, explicitly notes that its life insurance
policy is not directly linked to the mortgage and does not automatically end
when the mortgage is repaid early.

That means simply moving your mortgage from Lender A to Lender B does not
normally mean that an otherwise valid life policy has to be cancelled and
recreated.

Do you need a new life insurance policy when remortgaging?

Not necessarily.

If your existing policy still provides:

• the amount of protection you need;
• for the period you need it;
• on terms that continue to meet your circumstances;

there may be no reason to replace it solely because your mortgage lender
has changed.

Example: like-for-like remortgage

You should still review the policy because your wider circumstances may
have changed since you first arranged it.

What should you review when remortgaging?

Compare your new mortgage with your
existing protection.

Then consider wider changes such as:

• new children or dependants;
• changes in income;
• new debts;
• new savings or investments;
• changes in workplace life cover;
• marriage, civil partnership, separation or divorce;
• changes in health.

What if you borrow more when remortgaging?

This is one of the clearest reasons to review life insurance.

Example

Your existing policy does not normally become £300,000 simply because your
lender has agreed a larger mortgage.

You may therefore need to consider:

• increasing your existing cover, if permitted;
• adding separate additional cover;
• reassessing whether the entire new mortgage needs insurance;
• reviewing wider family-protection needs at the same time.

Remember that the mortgage balance is not automatically the only amount you
should insure.

Read:

How Much Life Insurance Do I Need for My Mortgage?

What if you extend your mortgage term?

A mortgage term extension can create a protection gap even if you do
not borrow any additional capital.

Example

The amount borrowed may be unchanged, but your mortgage liability now lasts
substantially longer than your life insurance.

This is particularly relevant because current FCA MCOB rules expressly
recognise that a qualifying remortgage without additional borrowing does
not have to be exactly like-for-like. The FCA gives extending a mortgage
term as an example.

What if your mortgage becomes smaller or shorter?

A remortgage can also reduce your financial liability.

You might:

• use savings to reduce the mortgage;
• shorten the mortgage term;
• make a large overpayment;
• move to a less expensive property.

This can mean you have more life insurance than is required purely to deal
with the mortgage.

But that does not automatically mean the excess protection
should be cancelled.

Ask what the rest of the cover is protecting

It might still provide for:

• children;
• replacement income;
• household expenses;
• other debts;
• future education costs;
• funeral expenses;
• other dependants.

Review the original purpose of the policy before reducing or cancelling it.

What if your mortgage repayment type changes?

Changing between repayment and interest-only borrowing can significantly
alter the suitability of your existing protection structure.

Repayment to interest-only

With a repayment mortgage, the capital should normally reduce as repayments
are made.

Decreasing term insurance can broadly reflect that reducing financial liability.

If you move to interest-only borrowing, the capital may stop reducing in
the way originally expected.

Your decreasing life insurance may nevertheless continue reducing according
to its original schedule.

That could create an increasing gap between:

• the mortgage you owe; and
• the life insurance benefit available.

Interest-only to repayment

If you previously used level term insurance for an interest-only mortgage
and switch onto repayment borrowing, your life cover would not normally
begin decreasing automatically.

This does not necessarily create a problem.

The fixed amount could continue to provide wider family protection even
as the mortgage reduces.

Read:

Life Insurance for Repayment vs Interest-Only Mortgages

Do you need to review life insurance after a mortgage product transfer?

A product transfer means moving onto a new mortgage deal with your existing
lender rather than remortgaging to another lender.

If:

• the mortgage balance remains broadly the same;
• the remaining term remains the same;
• the repayment method remains the same;
• the borrowers remain the same;

the product transfer itself may make little difference to the protection need.

However, it remains a useful review point because several years may have
passed since the insurance was arranged.

Your:

• family;
• income;
• savings;
• employment benefits;
• health;
• financial priorities

may all have changed during the previous mortgage deal.

What if you take a further advance from your mortgage lender?

MoneyHelper describes a further advance as additional borrowing from your
existing mortgage lender.

It is not technically the same as remortgaging, but it can have a very
similar effect on your protection needs because your total secured debt increases.

Example

Existing mortgage:
£160,000

Further advance for home improvements:
£80,000

Total borrowing:
£240,000

Existing life cover:
£175,000

If your protection objective is to provide enough money to deal with all
the mortgage borrowing, the further advance could create a material shortfall.

What if you remortgage because you are moving home?

Moving home often creates several changes at the same time.

You may have:

• a larger mortgage;
• a new mortgage term;
• new household expenses;
• a different number of borrowers;
• new dependants or family plans.

Current insurer guidance from Aviva identifies moving home, taking a bigger
mortgage or extending a mortgage as circumstances where existing life cover
may need to be reviewed.

In this situation, compare the complete new financial position rather than
simply increasing the old insured amount by the difference between the two
house prices.

How remortgaging can affect decreasing term life insurance

Decreasing term life insurance requires particular attention when a mortgage changes.

A decreasing policy generally follows a contractual reduction formula.
It does not continuously receive your actual mortgage balance from the lender
and recalculate the benefit.

A mismatch can therefore arise if you:

• increase your mortgage;
• extend its term;
• switch to interest-only;
• change repayment arrangements;
• take significant additional borrowing.

Example

Read:

Level vs Decreasing Term Life Insurance

How remortgaging affects level term life insurance

Level term insurance can be simpler to compare because the insured amount
normally remains fixed throughout the policy term.

Suppose you have:

• £300,000 level term cover; and
• a new £250,000 repayment mortgage.

The cover may still be sufficient for the mortgage amount, assuming the
policy lasts long enough and there are no other relevant limitations.

But if you increase the mortgage to £400,000, the same £300,000 policy
could leave a £100,000 gap if your objective is to insure the entire mortgage.

Again, the appropriate insured amount should consider wider family needs,
not simply the mortgage.

What if you add or remove someone from the mortgage?

Changes in borrowers should trigger a wider protection review.
See
single, joint and Dual Life Cover
and
Dual Life Cover.

Adding a partner

If a partner becomes jointly responsible for the mortgage, consider the
financial effect if either person dies.

You may need to assess:

• each person’s income;
• each person’s existing life cover;
• whether both incomes are needed for mortgage affordability;
• childcare and other unpaid contributions;
• whether single, joint or another cover structure is appropriate.

Removing a partner

Separation, divorce or a transfer of equity can also materially change
protection needs.

If one person becomes solely responsible for the mortgage, existing joint
life insurance may no longer reflect the intended ownership or protection structure.

Do not assume that changes to the mortgage automatically amend the insurance.
Speak to the insurer about the options available under the policy.

Can you change your existing life insurance instead of replacing it?

Potentially.

Life insurers can offer different policy-change options.

Depending on the contract, you may potentially be able to:

• increase the amount of cover;
• reduce the amount of cover;
• extend the policy term;
• reduce the policy term;
• add further protection;
• use an included guaranteed insurability option.

Changes may:

• change the premium;
• require additional underwriting;
• be subject to maximum limits;
• only be available after specified life events;
• have time limits for requesting the change.

Other insurers’ current guidance also demonstrates why checking existing
policy flexibility first can be worthwhile. For example, Legal & General
currently permits some customers to request changes to cover amount or term,
subject to its policy conditions and assessment.

What is a Guaranteed Insurability Option?

A Guaranteed Insurability Option — sometimes called a life-event option —
can allow eligible policyholders to increase cover after specified events
without going through full new medical underwriting.

The events and limits vary by insurer and policy.

Common qualifying events can include:

• marriage or civil partnership;
• having or adopting a child;
• an increase in earnings;
• buying a home;
• increasing a mortgage.

Assura Protect’s published option

Assura Protect’s current
Term Life
page states that Guaranteed Insurability Option is included with eligible Assura policies.

Assura’s currently published Dividend Life information states that the option
may allow eligible customers to increase cover without further medical checks
or underwriting following specified life events, including increasing a
mortgage for a new house purchase or home renovation.

The published information also sets limits on the amount and number of increases.

What are the risks of replacing existing life insurance?

Replacing an existing life insurance policy is not the same as switching
broadband, energy supplier or car insurance.

The new insurer normally assesses you based on your circumstances
today.

That can matter because:

• you are older than when you bought the existing policy;
• your health may have changed;
• your smoking or nicotine status may have changed;
• your occupation may have changed;
• new policy terms may differ;
• new exclusions or premium ratings may apply.

MoneyHelper currently warns that replacement life insurance can be more
expensive as you get older and that medical conditions may affect replacement
cover.

It also warns that once an existing policy is cancelled, it normally cannot
simply be reinstated because you later decide the replacement was unsuitable.

What if your health has changed since you bought your existing policy?

This can be one of the strongest reasons to approach replacement carefully.

Example

You arranged life insurance at age 30 when you had no significant medical conditions.

At age 42, you remortgage.

During the intervening years you have developed a medical condition.

Your existing policy may continue on its original contractual terms, but
applying for a completely new policy may require your current medical history
to be assessed.

Depending on the insurer and condition, this can potentially lead to:

• a higher premium;
• different terms;
• further medical evidence being requested;
• a decision not to offer the requested cover.

This is why cancelling established protection before new cover is fully
understood can create unnecessary risk.

How to switch life insurance without creating a protection gap

If, after reviewing the alternatives, replacing a policy is appropriate,
coordinate the timing carefully.

A safer sequence is:

1. Review the existing policy.

   Understand its insured amount, remaining term, benefits, exclusions
   and premium.

2. Establish the new protection need.

   Base this on the new mortgage and wider household circumstances.

3. Apply for replacement cover if required.

   Provide accurate information during underwriting.

4. Review the terms actually offered.

   The final terms may differ from an initial illustration.

5. Confirm when the new policy is in force.
6. Only then consider cancelling protection you no longer require.

MoneyHelper specifically recommends not cancelling existing life insurance
until replacement cover is fully set up.

Could your life insurance premium change when you remortgage?

The premium on an existing fixed-premium policy does not normally change
simply because your mortgage rate has changed.

However, your premium may change if you:

• increase cover;
• extend the policy term;
• add additional benefits;
• replace the policy with new insurance.

If you buy a new policy, factors affecting the new price can include:

• age;
• health;
• smoking or nicotine use;
• occupation;
• amount of cover;
• term length;
• type of protection;
• the insurer’s underwriting criteria.

This is another reason not to compare policies purely on the headline
monthly premium. See
how much mortgage life insurance costs.

Should you review critical illness cover when remortgaging?

Yes, if critical illness protection forms part of your financial planning.
See
life insurance and critical illness cover
and
Multi-Claim Critical Illness Cover.

A larger mortgage or longer mortgage term can mean greater financial exposure
if you survive a serious illness but lose income.

When reviewing critical illness cover, check:

• amount of cover;
• remaining policy term;
• covered conditions;
• definitions;
• exclusions;
• what happens to life cover after a claim;
• whether multiple claims are possible;
• premium affordability.

Do not assume that increasing mortgage life insurance automatically
increases critical illness benefits in the same way.

Do you need to change your life insurance after remortgaging?

These examples are general considerations rather than personal recommendations.

Step-by-step: review your life insurance when remortgaging

1. 1. Get the details of your new mortgage

   Record:

   • mortgage balance;
   • term;
   • repayment type;
   • borrowers;
   • additional borrowing.

2. 2. Get your existing life insurance documents

   Check:

   • insured amount;
   • remaining term;
   • level or decreasing structure;
   • lives insured;
   • premium;
   • policy-change options;
   • benefits and exclusions.

3. 3. Compare the two

   Look for gaps in amount, duration or structure.

4. 4. Reassess your family needs

   Consider changes since the policy was originally arranged.

5. 5. Check existing workplace and personal protection

   Avoid overlooking cover you already have.

6. 6. Ask your existing insurer what can be changed

   Find out whether increasing, reducing or extending existing protection
   is possible and on what terms.

7. 7. Compare alternatives where appropriate

   Compare the actual protection, not only the premium.

8. 8. Consider underwriting consequences

   Age and health changes can affect replacement insurance.

9. 9. Do not cancel necessary existing protection prematurely

   Ensure replacement cover is actually in force and suitable before
   ending cover you still need.

10. 10. Keep records with your mortgage and estate documents

    Make sure appropriate family members or trustees know that the policy exists.

Frequently asked questions