MORTGAGE LIFE INSURANCE

When you take out a mortgage you should also seriously consider taking out life insurance as this can be used to pay off the whole of your outstanding mortgage loan amount if you die.

The benefit of life insurance is that it can be used to ensure that your family will not suffer financial hardship or lose their home should you die. Of course in order to make this work you will have to take out life cover equal to or greater than what you owe on your mortgage.

Couples can take out a joint policy so that if either one of the policy holders dies then the policy will pay out to the other policy holder.

There are two main types of life insurance policy:

Level Term Assurance

In return for the same relatively small payment each month you can obtain life cover to pay out a predefined lump sum, known as the sum assured, on death.

A level term insurance policy runs for a fixed term and has no surrender value at the end of the term or if the policy is stopped before the end of the term. The sum assured is paid out if death occurs before the end of the policy term.

This insurance gets the name Level Term Assurance, because the level of cover, the sum assured, remains the same or level during the policy term.

This type of insurance can be used with the type of mortgage where you only make interest payments, as the capital owed remains the same throughout the life of the mortgage.

Decreasing Term Assurance

With this type of life cover the sum assured decreases during the life of the policy. Therefore the amount paid out on death will get less during the period of the policy.

Although this is probably the cheapest form of life assurance available the premium will remain the same throughout the policy.

A decreasing term insurance policy runs for a fixed term, which is usually the same number of years as your mortgage. The current sum assured will be paid out if death occurs before the end of the policy and should be sufficient to cover the capital balance of the mortgage still owed to your lender at that time.

If you have Decreasing Term Assurance the level of cover or sum assured decreases during the term of the policy. There is no cash-in value at any time.

This type of insurance is often used with a repayment type of mortgage where you are paying off some of the capital each month. The level of cover can therefore reduce at the same time as the capital owed reduces.

If you need a quote for either of the above types of life insurance policy and you live in the UK then please just give us a call.