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 mortgage protection and family are under control in the event of your death. It’s not a topic that many 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 protection life insurance
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
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 principal 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 principal 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 policies and provides an extra element of mortgage 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 the 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 mortgage 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.
Mortgage protection and life cover summary
As indicated by the features of the two main types of mortgage protection 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 protection and 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.