Mortgage life insurance pays out tax free a lump sum so that the outstanding mortgage balance on your home can be repaid to the mortgage lender in the event of death of the life assured. Not everybody needs Mortgage Life Insurance but if you do then it will give you and your family the peace of mind that the mortgage is paid off should you or a key family member die before the end of your mortgage term. These types of life insurance policies run for a specific period of time.
In addition to paying off the mortgage in the event of death you may want to ensure that your family receive income in the event of your death.
Decreasing Term Insurance
A decreasing term assurance policy is usually taken out to cover a repayment mortgage or other type of debt whereby the amount of debt reduces over the term of the loan or mortgage.
This is the least expensive type of insurance as the amount of potential payout reduces over time whilst payments remain the same. Unless there is a claim before the end of the term the insurance will just expire. There is no investment element to these types of policy as the overall objective of mortgage life cover is to pay off the remaining mortgage amount should death occur.
Level Term Insurance
A level term insurance policy pays out a tax free lump sum in the event of death of the life insured for a specific term which is usually the term of the mortgage. The amount you are covered for remains the same throughout the term of the policy. This type of life insurance policy is most suitable where the mortgage debt does not reduce throughout the term of the mortgage. This could be when the repayment vehicle is an investment policy such as an endowment policy which intends to pay off the mortgage at the end of the term.
Whole of Life
Another option is to take out a life assurance policy called a whole of life policy. This type of policy will pay out whenever you or the life assured dies. Premiums are more expensive than term insurance as the premiums are investment linked.
Family Income Benefit
If you think that your family will be unable to manage on the income they have in the event of your death then Family Income Benefit is worth considering.
Family Income Benefit is a term insurance which only pays out an income rather than a lump sum.
Critical illness cover is a popular “addon” to life insurance.
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