Understanding the Importance of Mortgage Protection Life Insurance
by: Claire Bowes
Your house is a big investment – probably one of the biggest you’re every likely
to make. It is also the place that you and your loved ones call home; a shelter
and haven from the outside world. That’s why it is so important to ensure that
your home and family are protected in the event of your death. It’s not a topic
that any of us like to dwell on, but the sad fact is that should you die and the
family are no longer able to afford repayments on the house, they will lose the
property and the roof from over their heads.
Having a good life insurance policy in place to protect your property in the
event of your death is vital. When you die, your family will have enough to worry
about without the added stress of how they are going to hold on to the family
home. Your life insurance policy will ensure that this problem is eliminated,
with the mortgage balance being paid in full upon your death.
The main types of mortgage life cover
The type of mortgage life insurance cover that you require will depend upon what
type of mortgage you have, a repayment or an interest only mortgage. There are
two main types of mortgage life insurance cover, which are:
- Decreasing Term Insurance
- Level Term Insurance
Decreasing term insurance
This type of mortgage life insurance is designed for those with a repayment mortgage.
With a repayment mortgage, the balance of the loan decreases over the term of
the mortgage. Therefore, the sum of cover with a decreasing term insurance policy
will also go down in line with the mortgage balance. So, the amount for which
your life is insured should match the balance outstanding on your mortgage, which
means that if you die your policy will hold sufficient funds to pay off the remainder
of the mortgage and alleviate any additional worry to your family.
With the decreasing term insurance, the cover is usually taken out over the term
of the mortgage, and payment is made should you die during the term of the policy.
Once the policy has expired, it becomes null and void, so you will receive nothing
at the end of your policy if you are still living. There is no surrender value
on this type of cover, but it does provide a cost effective means of protecting
your home and family during the life of your mortgage.
Level term insurance
This type of mortgage life insurance cover is for those that have a repayment
mortgage, where the principle balance remains the same throughout the term of
the mortgage and the repayments made by the property owner cover the interest
payments on the mortgage only.
The sum for which the insured is covered remains the same throughout the term
of this policy, and this is because the principle balance on the mortgage also
remains the same. Therefore the sum assured is a fixed amount, which is paid should
the insured party die within the term of the policy. As with decreasing term insurance,
there is no surrender value, and should the policy end before the insured dies
no payout will be awarded and the policy becomes null and void.
Terminal illness benefit
Both of the above types of cover normally include terminal illness cover, which
means that the mortgage is cleared should you be diagnosed with a terminal illness
rather than waiting until you actually die. This helps to ensure that you do not
have the additional worry of trying to meet repayments when a terminal illness
takes away your ability to work and earn money, and at a time when the whole family
has enough to worry about without having to stress about meeting mortgage repayments.
Critical illness cover
Critical illness cover is another type of insurance policy that can be added
on to either of the above mortgage life insurance polices and provides an extra
element of protection and peace of mind. This type of cover can also be taken
out as a stand-alone policy, but usually proves much better value if simply added
on to a main insurance policy.
With critical illness cover you will be eligible for a payout in the event that
you are diagnosed with a critical illness. If you then go on to recover from the
critical illness, the payout is yours to keep but the policy becomes null and
void following your claim. The illnesses that are covered by this type of policy
are defined by the insurer so you should ensure that you check the terms when
taking out critical illness cover.
Adding critical illness cover to your policy will only increase your repayments
by a small amount, but can provide valuable protection if you are diagnosed as
critically ill and are therefore unable to work. With your mortgage repaid from
the payout of this policy, you will not have the additional worry of trying to
keep a roof over your head at a time when you should be concentrating on trying
to make a recovery.
Summary
As indicated by the features of the two main types of mortgage life insurance
cover, the policy you go for will depend largely upon the type of mortgage you
have. Both types of cover offer value for money, with some really low cost deals
available. Of course, the amount that you pay will ultimately depend upon the
level of cover you require. For total peace of mind it is always advisable to
go for a policy with critical illness cover incorporated into it.
Having some form of mortgage life cover is essential to protect your home and
your family. After working hard to buy your own property, the prospect of it being
repossessed in the event of your death can be worrying both for you and for your
family. A mortgage life cover policy will ensure that this does not happen, and
will give your family the security of knowing that whatever happens they will
still have a roof over their heads.
This article was posted on November 04, 2004 | 
