Mortgage Protection Insurance

Mortgage Protection Insurance

Your mortgage is likely to be the biggest expense you will face in life, but what happens if you’re suddenly unable to make repayments?
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What is mortgage life insurance?

Mortgage life insurance will cover the costs of your mortgage in the event that you pass away. It is a complicated subject but we have compiled this handy guide to give you all the information you need to know.

What is mortgage protection life insurance?

A mortgage protection life insurance is a way to ensure your mortgage is covered in the event of your death. As such it is a good way to ensure your family are not left in financial hardship when you die.

Mortgage protection life insurance comes in three main forms.

Decreasing term mortgage

With this type of insurance you continue to pay the same premiums every month but the amount you can claim decreases as the mortgage and insurance come to the end of their terms.

For example, if you die shortly after taking out a mortgage, the insurance company will cover the entire mortgage but if you die near the end of the mortgage’s life the insurance company will only pay out what is left to pay.

You should only take this type of insurance out if you have a repayment mortgage that pays off capital as well as interest.

Fixed term insurance

These policies pay out a fixed sum regardless of how much debt is left on the mortgage. As such they are generally slightly more expensive.

For example, if you take out a policy to cover £150,000 you’ll be paid £150,000 no matter when you it is paid-out.

Although it is generally more costly, the main benefit of these policies are that the amount paid out could not only pay for the mortgage but also leave a lump sum for your family in the event of your death.

Whole of life insurance

These policies run for the whole of your life and not just for the mortgage length. They are generally linked to investments which replenish and expand the fund.

The downside to these policies is that the fund has to continually perform well to ensure a good pay-out.

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Mortgage life insurance with critical illness

It is usually possible to add the option of critical illness cover to a mortgage life insurance policy. This ensures that you will receive a pay-out if you suffer from an illness or accident which stops you from doing your job.

Some even allow you to add a waiver premium which enables you to stop paying premiums if you lose your job.

Cost of mortgage life insurance

Every mortgage life insurance quote will be different for each person so working out the cost is difficult.

Premiums are generally based on the risk of having to pay out and as such are reliant on things like your age, sex and health. Life insurance companies base their decisions and premium costs on how likely you are to make it to the end of the mortgage term and as such how likely they are to have to pay-out.

Some companies will refuse to cover certain individuals, for example some will refuse to insure over 50s, while others may not give policies to people with pre-existing health conditions.

It is important to look closely at the small print of any policy. Cheap premiums may be enticing but may indicate limited cover. Any decision needs to be made based on how much cover you want and how much you can afford for premiums.

Shop around and compare policies to ensure you get the best value you can.

Decreasing term mortgage

With this type of insurance you continue to pay the same premiums every month but the amount you can claim decreases as the mortgage and insurance come to the end of their terms.

For example, if you die shortly after taking out a mortgage, the insurance company will cover the entire mortgage but if you die near the end of the mortgage’s life the insurance company will only pay out what is left to pay.

You should only take this type of insurance out if you have a repayment mortgage that pays off capital as well as interest.

Fixed term insurance

These policies pay out a fixed sum regardless of how much debt is left on the mortgage. As such they are generally slightly more expensive.

For example, if you take out a policy to cover £150,000 you’ll be paid £150,000 no matter when you it is paid-out.

Although it is generally more costly, the main benefit of these policies are that the amount paid out could not only pay for the mortgage but also leave a lump sum for your family in the event of your death.

Whole of life insurance

These policies run for the whole of your life and not just for the mortgage length. They are generally linked to investments which replenish and expand the fund.

The downside to these policies is that the fund has to continually perform well to ensure a good pay-out.