Protecting Your Mortgage
If you have a mortgage on your home, you may need to take out life insurance protection. This is to satisfy your lender that you'll be able to repay all the money you've borrowed - especially if you were to die unexpectedly during the repayment period. After all, if you died without life protection whilst still repaying your mortgage, the lender might have to re-claim your property, to the obvious detriment of your family.
Your mortgage - dictating the kind of life insurance you'll need
The kind of life insurance policy you'll need will depend on the type of mortgage you've taken out:
Repayment mortgage
This is a mortgage in which you pay the lender a monthly sum covering part of the loan and part of the interest on the loan. In this way, the capital amount of the loan decreases each month of the mortgage term until the loan is paid off completely. The life insurance required for this kind of mortgage is called a decreasing term life insurance plan. That's because the sum insured decreases every year in line with the decreasing loan amount. When the life policy comes to an end after you've paid off the mortgage, it ceases without paying any money out.
Interest-only mortgage
With this mortgage, you just pay interest on your mortgage loan, and then you pay off the capital of the mortgage through a separate investment plan. The life insurance required for this kind of mortgage is called a level term life insurance plan, where the sum insured stays the same throughout the life of the plan. (Term quote link). Again, when the policy comes to an end after you've paid off the mortgage, it ceases without paying any money out.
What additional features are available?
When you take out life insurance to cover your mortgage, there are several additional features which are most common:
Critical illness cover
Pays out on death or the diagnosis of a specified illness. This option will add an extra amount to the overall premium.
Premium protection
Also known as 'waiver of premium', this policy will pay (or waive) your monthly or annual premium if you are ill and unable to work.
Terminal illness cover
Usually a standard part of an insurance policy, it doesn't cost extra, and benefit can be claimed if you are unlikely to survive a terminal illness for more than 12 months.
Call 0800 389 2193 to speak to an Independent Financial Adviser about your individual life insurance needs or request a call back.
