Mortgage Protection Life Insurance
Introduction to Mortgage Protection Life Insurance
Mortgage Protection Life Insurance, is a type of Term Life Insurance (assurance) that is specifically taken out to protect your mortgage. It's aim is to pay off your mortgage in full in the event that you, or a joint mortgage holder dies within the term of the mortgage.
Although there are a number of options available for most types of mortgage protection life insurance, there are broadly speaking 2 main types of Mortgage Protection Life Insurance :
a) Decreasing Term Life Insurance :
This is specifically designed to pay off a 'repayment mortgage', and the amount assured reduces as the size of the mortgage reduces throughout the mortgage term as it is paid off.
It is usually cheaper than level term life insurance as the amount assured (max payout amount) reduces with time.
Click for more info on decreasing term life insurance.
b) Level Term Life Insurance :
With this type of term insurance, the amount assured (the amount that will be paid out if you suffer death within the term) stays level. i.e.
if you take out cover for £100,000 over 25 years, it will pay out £100,000 if you die within 25 years.
This is suitable for an interest only mortgage, or can be taken alongside a repayment mortgage and will then usually pay out more than the size of the mortgage leaving some extra cash spare.
Because the amount assured (the amount that will be paid out on death) stays the same rather than reducing over the term, the benefit paid out is likely to be higher in comparison to a decreasing term insurance. Therefore, the like-for-like cost compared to decreasing term insurance is usually higher.
Click for more info on level term life insurance.
Why take out mortgage protection life insurance?
Death is a horrible subject to talk or even think about, but it is a fact that some people do die during the term of their mortgage. Taking out and maintaing the correct amount of mortgage protection life insurance cover ensures that your mortgage will be paid off in the event of death during the mortgage term.
When considering whether you need to protect your mortgage, you should think carefully and realistically about the situation you would leave behind if you died during your mortgage term. What would happen to your mortgage if you died? Would someone else be able to afford to pay it in your absence? What effect would it have on your loved ones?
Remember – failure to maintain the repayments on a mortgage can result in the property being repossessed.
Even if a mortgage is in your sole name, and you do not have any dependents (eg. children) – you may wish to ensure that the mortgage is paid off if you die. The unencumbered (mortgage free) property can then be left as an asset in your will – rather than leaving a liability (mortgage debt).
Mortgage Protection Life Insurance at a glance
- A type of term life insurance used to pay off your mortgage in the event of death during the mortgage term.
- Can be taken out in sole name or joint names.
- 2 main types are 'level term' or 'decreasing term'.
- Decreasing term is suited to a repayment mortgage, and is often cheaper than level term insurance as the amount of cover reduces over time as the mortgage reduces.
- Level term is used to cover an interest only mortgage – or can be used for a repayment mortgage and may pay out more in excessive of the amount required to pay the mortgage off in full.
- Mortgage protection life insurance is a type of pure protection policy. Therefore, if the policy does not pay out during the term it lapses without any value. There is no investment element at all – it ONLY pays out in the event of death within the policy term.
Some additional options with mortgage protection life insurance
- You can opt to include Critical Illness Cover to a decreasing term life insurance policy. It will then pay out in the event that you are diagnosed with one of the specified critical illnesses covered by the policy, during the policy term.
- Waiver of Premium Benefit. You can pay a small amount extra (usually between 2% - 4% extra on top of your premium) for waiver of premium benefit. This benefit means that the insurer will waive the premium (i.e. you will not have to pay) in the event you are off work due to accident or illness. This means that your mortgage can remain protected, rather than the policy lapsing, in the event that you are off work due to accident or illness.
There are additional options applicable to some mortgage protection life insurance that you should discuss with your EFS adviser.
« Back to Life Insurance Companies «
