There are two main types of mortgage life insurance. These are decreasing term insurance and level term insurance. The type of policy required will depend on whether the life insured’s mortgage is a capital repayment or interest only mortgage plan. With both types of plan, the term of the insurance policy is set to equal the mortgage term.
A decreasing term life insurance policy is designed for policyholders who have a repayment mortgage plan. With this sort of mortgage, the mortgage debt decreases over time. The sum covered by the decreasing term life insurance policy will decrease accordingly over time. This means that the amount of cover will always equal the outstanding mortgage balance, thus if the policyholder dies their life insurance policy will pay off the mortgage debt.
A level term life insurance policy is for policyholders who are repaying their mortgage on an interest only basis. With this plan, the sum covered remains constant for the term for the policy. This sum assured is a fixed amount that is set to equal the principle value of the mortgage. Should the policyholder die during the term of the policy, this sum will be paid out to clear the mortgage debt.
With both decreasing and level term life insurance, should the policyholder outlive their plan, as they most likely will, the policy will expire at the end of the mortgage and insurance term. There is no value paid out if the policy expires, such a policy simply provides protection against the risk of death for the duration of the mortgage term. Term life insurance policies are an effective and affordable way for the policyholder to protect their family home and dependants.
Mortgage protection life insurance will usually come with terminal illness benefit. This means that the mortgage balance will be automatically cleared if the life insured is diagnosed with a terminal illness. Most polices will offer the option to also add critical illness cover to the plan. It is also an option to buy stand alone critical illness cover.
The cost of mortgage protection life insurance will depend on a number of factors. When pricing a policy an insurer will take into account the lifestyle and personal circumstances of each applicant. The amount and type of cover required will partly determine the cost of a policy. Policies can be very affordable and to find the best value plan it is a good idea to shop around.
