Your house is a big investment - probably one of the
biggest you're every likely to make. It is also the place
that you and your loved ones call home; a shelter and haven
from the outside world. That's why it is so important to
ensure that your home and family are protected in the event
of your death. It's not a topic that any of us like to
dwell on, but the sad fact is that should you die and the
family are no longer able to afford repayments on the
house, they will lose the property and the roof from over
their heads.
Having a good life insurance policy in place to protect
your property in the event of your death is vital. When you
die, your family will have enough to worry about without
the added stress of how they are going to hold on to the
family home. Your life insurance policy will ensure that
this problem is eliminated, with the mortgage balance being
paid in full upon your death.
The main types of mortgage life cover
The type of mortgage life insurance cover that you require
will depend upon what type of mortgage you have, a
repayment or an interest only mortgage. There are two main
types of mortgage life insurance cover, which are:
§ Decreasing Term Insurance
§ Level Term Insurance
Decreasing term insurance
This type of mortgage life insurance is designed for those
with a repayment mortgage. With a repayment mortgage, the
balance of the loan decreases over the term of the
mortgage. Therefore, the sum of cover with a decreasing
term insurance policy will also go down in line with the
mortgage balance. So, the amount for which your life is
insured should match the balance outstanding on your
mortgage, which means that if you die your policy will hold
sufficient funds to pay off the remainder of the mortgage
and alleviate any additional worry to your family.
With the decreasing term insurance, the cover is usually
taken out over the term of the mortgage, and payment is
made should you die during the term of the policy. Once the
policy has expired, it becomes null and void, so you will
receive nothing at the end of your policy if you are still
living. There is no surrender value on this type of cover,
but it does provide a cost effective means of protecting
your home and family during the life of your mortgage.
Level term insurance
This type of mortgage life insurance cover is for those
that have a repayment mortgage, where the principle balance
remains the same throughout the term of the mortgage and
the repayments made by the property owner cover the
interest payments on the mortgage only.
The sum for which the insured is covered remains the same
throughout the term of this policy, and this is because the
principle balance on the mortgage also remains the same.
Therefore the sum assured is a fixed amount, which is paid
should the insured party die within the term of the policy.
As with decreasing term insurance, there is no surrender
value, and should the policy end before the insured dies no
payout will be awarded and the policy becomes null and void.
Terminal illness benefit
Both of the above types of cover normally include terminal
illness cover, which means that the mortgage is cleared
should you be diagnosed with a terminal illness rather than
waiting until you actually die. This helps to ensure that
you do not have the additional worry of trying to meet
repayments when a terminal illness takes away your ability
to work and earn money, and at a time when the whole family
has enough to worry about without having to stress about
meeting mortgage repayments.
Critical illness cover
Critical illness cover is another type of insurance policy
that can be added on to either of the above mortgage life
insurance polices and provides an extra element of
protection and peace of mind. This type of cover can also
be taken out as a stand-alone policy, but usually proves
much better value if simply added on to a main insurance
policy.
With critical illness cover you will be eligible for a
payout in the event that you are diagnosed with a critical
illness. If you then go on to recover from the critical
illness, the payout is yours to keep but the policy becomes
null and void following your claim. The illnesses that are
covered by this type of policy are defined by the insurer
so you should ensure that you check the terms when taking
out critical illness cover.
Adding critical illness cover to your policy will only
increase your repayments by a small amount, but can provide
valuable protection if you are diagnosed as critically ill
and are therefore unable to work. With your mortgage repaid
from the payout of this policy, you will not have the
additional worry of trying to keep a roof over your head at
a time when you should be concentrating on trying to make a
recovery.
Summary
As indicated by the features of the two main types of
mortgage life insurance cover, the policy you go for will
depend largely upon the type of mortgage you have. Both
types of cover offer value for money, with some really low
cost deals available. Of course, the amount that you pay
will ultimately depend upon the level of cover you require.
For total peace of mind it is always advisable to go for a
policy with critical illness cover incorporated into it.
Having some form of mortgage life cover is essential to
protect your home and your family. After working hard to
buy your own property, the prospect of it being repossessed
in the event of your death can be worrying both for you and
for your family. A mortgage life cover policy will ensure
that this does not happen, and will give your family the
security of knowing that whatever happens they will still
have a roof over their heads.
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