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.
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.
A policy offering life insurance for mortgage cover is designed to pay out an amount of money required to pay off some or all of your mortgage. It is important to note that this type of insurance will not leave your family with any extra money to cover additional costs, such as day-to-day living expenses, bills, childcare and education.
If you worry that your family might struggle to stay afloat financially in the event of your death even once the house has been paid for, then you may consider taking out a Level Term Life Insurance policy with an increased level of cover that could leave your dependants with additional financial security.
In their simplest form, mortgage protection insurance policies do not pay out in the event of a critical illness, which could leave you struggling financially should you suffer one. However, it is possible to add Critical Illness Cover to your policy at the time of purchase.
Finally, as with all life insurance policies, it is vital to read the key features of the policy you choose so that you are aware of any possible limitations in the cover selected. To learn more, visit our What is Life Insurance page.
There are many reasons a person might decide to take out a mortgage protection insurance policy. However, the most common is if your dependants would struggle to pay off the remainder of your mortgage in the event of your death.
If you think mortgage protection insurance might be right for you, the next step is finding the right policy which is where Compare Cover comes in. As life insurance quote specialists, our only goal is to give you the tools to find the best policy for you and your family. Our comprehensive, easy to use online service gives you the power to compare different policies from a range of leading insurers. Get Quotes today.
If you are replacing an existing policy, please ensure you do not cancel your current arrangements until your new policy is in force.
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