Mortgage life cover pays out a sufficient sum of money to clear any loans that are secured on the property in the event of death. It offers an affordable alternative to level term or a whole life insurance policy for those who are working with a limited budget. However, the coverage is adequate to ensure that the risk of losing the property as a result of non-payment is completely eliminated. This can provide genuine peace-of-mind for a family, especially if personal savings are limited.
What is Decreasing Term Insurance?
Mortgage life cover is a variation of level term life insurance. Level term coverage pays out a defined cash sum, regardless of whether the insured dies in the first or last year of the policy. Decreasing life insurance takes into account that the size of a mortgage comes down with each passing year (provided that it isn’t interest-only). The amount that the policy pays out, along with the necessary monthly premium, will reduce over its life span.
Who Should Take Out Mortgage Life Cover?
Whilst rarely useful for a single person with no dependents, mortgage life insurance cover is fundamentally important to those who have a partner and/or a young family to protect. Any sudden loss of income can be financially catastrophic. Many couples take out joint decreasing term insurance so that the policy pays out to the partner who survives the other. It is important to appreciate that the survivor may not be in a position to work on a full-time basis if they have young children.
Cheap Mortgage Life Insurance
Mortgage life cover is the least expensive way to protect a family financially in the event of death. The earlier that coverage commences, the less expensive it will be. The likelihood of death inevitably increases with age and the premiums are indicative of this fact. Whilst fixed premiums are more expensive (at least initially), reviewable premiums could offer a slightly less expensive alternative for those who are starting their married life.
Life and Mortgage Insurance with Critical Illness Cover
Subject to affordability, most homeowners take out a combined life and critical illness insurance policy. This is because a life-threatening illness may render that person unable to work, although it doesn’t necessarily lead to death. If the insured suffers an illness that is defined in the contract (a stroke, heart disease, cancer etc), the policy will pay out immediately. This can help to alleviate the financial burden and allow the insured to focus on making a full physical recovery.
Is Mortgage Term Life Insurance Sufficient?
Anyone who has both mortgage debt and dependents needs mortgage term life insurance to provide protection against the unexpected. Should either parent pass away, the financial security of a family will be seriously compromised. This can be so even if the deceased isn’t the main bread winner. Who will provide childcare if the survivor is working and how will the cost be covered? The loss of a partner completely changes the entire course of that person’s life so don’t let money become a further worry.
How Decreasing Term Life Insurance Works
A mortgage term life insurance policy takes into account the fact that less coverage is needed following each repayment. As the amount of mortgage debt goes down, the lump sum paid out (not to mention the monthly premium) reduces proportionately. Subject to age and eligibility criteria, the policy lasts as long as the mortgage.
Inexpensive Mortgage Term Life Insurance
Mortgage insurance cover is normally taken out because it is the most affordable way of protecting the family. This can be particularly beneficial for those who have a limited disposable income or are just seeking a no-thrills policy. The younger the person taking out mortgage life insurance, the less expensive the premiums will be. The cost of coverage will be higher for both men and smokers because they each enjoy a shorter life expectancy.
Alternatives to Mortgage Insurance Cover
Level term life insurance. This policy provides a flat level of coverage in return for a defined premium for the full duration of the specified term. After the mortgage has been paid off, it leaves a little extra for other bills and living expenses.
Whole life insurance. Coverage is provided for the entirety of the insured’s life. This is achieved by investing a percentage of each premium to cover the cash lump sum and/or future premiums. It is the most expensive form of insurance. Whilst it can be used to pay off the mortgage, it is really intended as a way of leaving money for loved ones or a source of tax planning.
Critical illness insurance. Although not really an alternative, it should be considered in addition to mortgage term life insurance. Should the insured develop a life-threatening illness, a critical illness insurance policy will pay out a valuable cash lump sum. This helps to alleviate financial stress so that the infirm can concentrate on making a full recovery.
Does Decreasing Life Insurance Offer Sufficient Coverage?
Whilst a family may have savings and no debt (other than the mortgage), this certainly isn’t the case for everyone. Should someone fall into this category, mortgage term life insurance could provide adequate protection. It ensures that the mortgage is cleared so the insured cannot lose their home. The reality is that the majority of families have unpaid debts (credit cards, hire purchase, loans) and bills that will need to be taken care of. Funeral costs alone regularly amount to upwards of £3,000. Level term life insurance could enable a family to affordably provide coverage in respect to these costs.