Mortgage protection insurance
Are you considering taking out mortgage protection insurance, but feeling confused
about your options?
As the name implies, mortgage protection 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 mortgage could be paid off in its entirety ? ensuring that
your loved ones won?t have to worry about losing their home, in addition to losing
you.
However, there are several important differences between mortgage protection
insurance and other types of life insurance. So, to help you make an informed
decision, we?ve put together this simple guide.
Here, we?ll explain exactly what mortgage protection insurance is, what it covers
and what it does not cover ? so you can decide whether this is the best type of life
insurance for you and your family.
What is mortgage protection insurance?
Put simply, a mortgage protection insurance policy is designed to pay off your
mortgage in the event of your death. If you have a repayment mortgage, your
outstanding mortgage decreases over time. Similarly, with a mortgage protection
insurance policy, the amount of cover the policy provides decreases over time,
roughly in line with your repayment mortgage ('If you have an interest only mortgage
where the outstanding capital balance remains the same throughout the term of the
mortgage, a level term life insurance policy may be more suitable')
For example, if you take out a mortgage protection insurance policy and die shortly
afterwards with £150,000 still left to pay on your mortgage, this is the amount your
insurer will pay out. If, however, you died many years later with only £15,000 left
to pay, your insurer would only pay out this amount.
For this reason, mortgage protection 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 still only designed to pay
out on a single claim over the term of the policy so will pay out on the death of
either of the people covered, whoever dies first.
How long will the policy last?
When you take out your policy, you choose the number of years you wish the cover to
be in force (term). With mortgage protection 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.
