Mortgage Protection
Mortgage Protection Insurance is designed to pay out a lump sum in the event of your death, to ease the financial impact of your passing. Although it’s not nice to think about, it’s vital to consider how your family would manage your mortgage if you were to pass away. For many families in the UK, their mortgage repayment would be the largest and most important monthly outgoing. Ask yourself, would your loved ones be able to cover the monthly payments without you? Having Mortgage Protection Insurance in place ensures they won’t have to worry and can continue to live in the home.
What Is Mortgage Protection Insurance?
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Mortgage Protection Insurance is a form of life insurance. Depending on the type of mortgage you have there are two options for cover – Level Term and Decreasing Term Life Insurance. These types of policies are designed to cover the remaining debt on your interest-only or repayment mortgage should you pass away during the term.
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When arranging your protection policy, the term is best determined by your mortgage term so that you’re covered for the length of your mortgage.
Do I Need Mortgage Protection Insurance?
If you have a mortgage, then yes, you should seriously consider Mortgage Protection Insurance. Having this type of insurance in place means your loved ones would be able to keep your home if you pass away before you finish paying off your mortgage. If you don’t have a policy in place, you risk leaving your monthly mortgage payments to your partner and/or any dependents. This could create financial worries for your loved ones at an already difficult time.
Types Of Mortgage Protection Insurance
Decreasing Term Life Insurance
This is best suited to people who have a repayment mortgage. The lump-sum payout decreases over time, mirroring the outstanding balance of your mortgage. The policy term is set for the same duration as your mortgage, meaning you’re covered for the entire length of your mortgage. This means that if you have a 30-year mortgage term your decreasing term life insurance policy would run for at least the same amount of time. For example, at the start of the policy the payout may be £300,000 (the same value as your mortgage), whereas after 10 years of repayments (on your mortgage) the policy payout will reduce in line with the amount left on your mortgage.
Level Term Life Insurance
Is best suited to people who have an interest-only mortgage. This is because the sum assured is a fixed amount throughout the duration of the policy term. No matter when a claim is made, the payout will cover the full amount of your mortgage. This type of cover is also popular with people looking to leave a lump sum for their loved ones to cover more than just the mortgage. It is possible to increase your sum assured to cover other expenses such as utility bills, childcare costs, and general living expenses. This is likely to inflate your premiums but would ensure complete peace of mind that your loved ones will be cared for financially.
Once you’ve decided which type of policy is best for you, there is also the option to add Critical Illness Cover. This is usually combined with Life Insurance so that if you fall critically ill and are unable to work you can still pay your mortgage. The benefit of adding Critical Illness Cover to your policy is that you’re covered for two scenarios, just in case. Do bear in mind though, that your policy will only pay out once. This means if you claim for a critical illness your policy expires once you receive the payout, meaning you no longer have life cover.
