Mortgage Protection Life Insurance
As the name implies, mortgage protection life insurance is designed to pay off your outstanding repayment mortgage in the event of your death. This means that in the event of a claim, your dependants will receive a lump sum intended to pay off your mortgage in its entirety, ensuring that your loved ones won't have to worry about losing their home in addition to losing you.
If you have a repayment mortgage the amount of the outstanding mortgage decreases over time. In a similar way, with a policy offering life insurance for mortgage cover, the amount of cover the policy provides typically decreases in line with the outstanding balance of your repayment mortgage.
For this reason, mortgage protection life insurance is also known as 'decreasing term life insurance' and, because the cover reduces, this type of policy tends to be cheaper than level term insurance. It is important to note that, although the size of the payout decreases over time, the price of your premium stays the same throughout the length of your policy term.
You can take out a mortgage protection policy to cover either one or two lives. When it covers two lives (known as Joint Life), the cover is only designed to pay out on a single claim over the term of the policy. It will pay out if one of the policy holder dies during the term of the policy which will then cease.
How long will the policy last?
When you take out your policy, you choose the number of years (the term) you wish the cover to be in force. With mortgage protection life insurance, this should be the same as your remaining mortgage term. You will need to pay your premiums every month of your chosen term, or the policy and the protection it provides will cease.
There is no cash in value at any time and, if no claim is made before the end of the term, the policy will cease and nothing will be paid out. If, at any time during the term of the policy, a claim is made, then the policy will cease following the payment of the claim.