What is Mortgage Life Insurance?
Mortgage life insurance is usually purchased to cover the mortgage expenses in the event of your death, so that your loved ones can pay off the outstanding mortgage without needing to find the money out of their own pockets.
Mortgage life cover can provide peace of mind that ensures your children, partner or relatives will be provided for in the event of your death. As with other types of insurance, this type of insurance pays your dependents a lump sum or regular payments if you die, which is essential if they rely on your income to pay the mortgage each month.
But if you’re new to the world of life cover, you may not be aware of the types available to you and the considerations you need to make when choosing mortgage life insurance. It can be beneficial to talk to a specialist in this field before signing on to any type of cover, to check it protects you and your loved ones.
There are two key types of life insurance to choose between:
- Level Term Life Insurance – These policies run for a fixed period of time, such as 10, 15 or 25 years. Term life insurance policies guarantee to pay out a fixed level sum assured and only pay out if you die during the policy term and there’s no lump sum payable when the term comes to an end.
- Decreasing Term Life Insurance – Is a type of life insurance policy that’s paid over a fixed period of time in line with a mortgage term. The level of pay-out decreases over the length of the policy. It’s often used to cover the balance of a repayment mortgage, because this is a type of loan that also decreases over time.
Why Do I Need Life Insurance for a Mortgage?
There’s no legal obligation to get life insurance when you sign on for a mortgage, but some lenders will consider it as a pre-condition when they lend you money to buy a property. And for many people, having financial protection on such a large debt makes sense.
Whether you’re getting a mortgage for the first time or this is a home move and you’re taking out a different loan for your home, you may not be aware of the importance of insurance. But, should anything happen to you, you could be leaving your relatives or family members with significant debt in the form of your mortgage.
Insurance which is designed to help you cover your mortgage payments in the event of your death is a great way of supporting your family and the people you care about.
Mortgage life cover can be especially useful if you’re buying a home with a partner – when you buy a property with someone else, the mortgage repayments may be calculated based on both of your salaries.
However, if one of you dies, the other will be left with repayments that may be too much for them to afford. An insurance policy can protect your partner from an unexpected expense each month. Likewise, if you’re the owner of a property that is rented out or that you bought as an investment, insurance may be required to help cover the balance of the property in the event that you pass away.