With so many different options out there, we understand that choosing the right life insurance policy for you and your situation can be a little confusing. Each policy can offer different benefits and restrictions, so it is important that you have all the information you need before you make a decision.
We recently discussed what first-time buyers need to know in our First-Time Home Buyers Guide, so this is a good time to look at Mortgage Protection life insurance policies and what they actually offer.
Mortgage Protection life insurance is designed to pay off a repayment mortgage should you die before the end of the mortgage term. This means that your dependents or next of kin will not have to worry about the monthly mortgage payments, as your life insurance policy should repay the remaining mortgage amount.
It's important you take out a policy that matches your outstanding mortgage amount and mortgage term. Your premiums will remain the same throughout your selected policy term. The amount of life cover payable reduces in a similar way to the outstanding amount on a repayment mortgage, assuming a fixed interest rate.
There are a number of reasons why some people choose to opt for a Mortgage Protection life insurance cover policy.
Firstly, it can be suitable for families who have just bought their first home, with a repayment mortgage, and have young children. When looking at, say, 35 years of mortgage repayments ahead of them with a sizeable mortgage amount that they need to pay, this type of policy could be invaluable. As the monthly premium takes account of the reducing level of cover that will be payable over the policy term, it is usually cheaper than alternative policies.
This type of policy may allow dependents to stay in the home in the event of death. Without protection, they may struggle to keep up with the mortgage payments and be forced to sell the family home. However, if the outstanding mortgage is covered, they are more likely to be able to continue to live in their home.
While there are many benefits of a Mortgage Protection life insurance policy, there are some restrictions that may mean that it does not fully provide all the life cover you need.
While this type of policy covers mortgage payments, it does not provide any other financial support for other costs that your family may incur after your death such as funeral costs, childcare expenses and other loans. While the mortgage may be paid off, this doesn't mean that they will be able to keep up with the other associated costs of running a home.
Another name for a Mortgage Protection life insurance policy is 'decreasing term life insurance,' which alludes to the fact that over time, the amount of money the policy will pay out, decreases, just as your mortgage decreases.
This is why some people also consider more comprehensive policies.
Of course, a Mortgage Protection life insurance policy may be the perfect option for you, but if you are looking for something with more cover, a Level Term life insurance policy may be a better choice.
This type of policy allows you to set a fixed amount that will be paid out should you die within the specified term. The amount of cover remains the same for the term of the policy as do your premiums. This means that the money paid out can be used to cover mortgage payments as well as a variety of other costs your family may be faced with. You may also be able to provide for your children's futures, setting money aside for their University fees, wedding costs or even when it comes to them buying their own house.
A Level Term life insurance policy could offer a little more flexibility than a Mortgage Protection policy.
Or alternatively, you could take out both policies based on your needs. A Mortgage Protection life insurance policy for your repayment mortgage and a Level Term life insurance for those additional family costs.
Everyone's needs and situations are different, so we would advise you to take the time to research the different policies available to find the one that suits you best.
Whether you choose Mortgage Protection life insurance, Level Term life insurance or any other type of policy, you can compare life insurance at Compare Cover to help you secure the right deal for you and your family.
If you're not sure how much cover you will need, you can use our life insurance calculator to get a better idea of the type of cover that may be best for you.
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The stage in your life and the responsibilities you have, rather than your age, should be at the forefront of your mind when thinking about whether life insurance is right for you.