Mortgage Life Insurance Cover
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Written by:
Richard Johnson
Ascot Protection Expert
Last Updated:
05.10.2023
Written by:
Richard Johnson
Ascot Protection Expert
Last Updated:
05.10.2023
Life Cover
Life cover provides financial protection for your family in case you pass away.
Many people get enough life cover to pay off their mortgage if they die. However, this may not be sufficient because we often have other financial responsibilities like credit card bills, loans, council tax, childcare costs, and utility bills, which wouldn’t disappear if one of the main earners dies. Protection insurance can be helpful in such situations. You can buy a life cover that pays a lump sum or a monthly income to cover your bills if you need to make a claim during the term of your plan. You can even combine both payment types to give your family comprehensive protection, covering the mortgage and providing the income they need to sustain their lives in the family home without you.
Mortgage life insurance – also known as “mortgage life assurance”
Mortgage Life Insurance, sometimes tellingly named ‘Mortgage Life Assurance,’ is essentially a form of life insurance designed to protect your mortgage and property. Simply it means that, in the event of the mortgage-holder passing away, the insurance policy would pay out enough capital to cover the remainder of the mortgage outstanding and, dependent on the policy, also some extra money to help with other expenses. This piece of mind can be tailored to your circumstances around three main forms: ‘Decreasing Term;’ ‘Level Term;’ and ‘Whole of Life Cover’.
The types of mortgage life cover
‘Decreasing Term’ means that because your mortgage decreases as you make your monthly repayments so too does the amount that would be paid out in the result of a claim. It links the amount that your mortgage is insured for with how much is actually left to repay meaning that your monthly payment stays the same. This enables you to budget effectively for your insurance payments; it is only suitable for those who are paying both the capital and interest off the mortgage because it is relative to the actual capital outstanding.
‘Level Term’ also provides you with a fixed monthly repayment that enables you to manage your finances easily. Although generally more expensive because the sum that is insured remains the same regardless of how much of the mortgage you repay, this type of ‘Mortgage Life Insurance’ has the benefit of often building up a surplus of capital. This provides extra cash, not tied into mortgage repayments, should a claim be made on the policy.
‘Whole of Life Cover’ can be linked to other investments, such as pensions, and means that the policy could be taken out as a lump sum if you pass away.
In addition to the flexibility of the three forms of Mortgage Life Insurance there are other elements that can be added which makes it the perfect form of insurance for homeowners who want protection tailored to their individual needs. Premiums are calculated on an individual basis meaning that you can be assured that you are paying a fair price for your piece of mind. Optional extras also include the possibility of putting a ‘waiver’ onto your premium meaning that if you were unable to work, for instance because of sickness, accident or unemployment, you could suspend your monthly Mortgage Life Insurance. The flexibility, benefits and ease of Mortgage Life Insurance means that they are a safe means of securing your home.
If you would like free initial advice about the different mortgage protection and / or life insurance options available please contact Ascot Mortgages – we are will be happy to explain things in a clear, unbiased and helpful way.
There are other providers of Payment Protection Insurance [Short-Term Income Protection] and other products designed to protect you against loss of income. This will typically cost £3 per month for every £100 of benefit. For impartial information about insurance, please visit the website at www.moneymadeclear.org.uk
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FAQ
Life insurance provides a lump sum payment to your chosen beneficiaries upon your death, helping them manage financial responsibilities. Mortgage life insurance, on the other hand, specifically covers the outstanding balance of your mortgage, ensuring your loved ones can remain in the home without the financial burden of mortgage payments.
Mortgage Life Insurance is a type of policy designed to pay off your mortgage in the event of your death. It ensures that your family won’t have the added stress of meeting mortgage payments during a challenging time.
Lifetime mortgages, a type of equity release, allow homeowners to unlock the equity in their homes without selling. They can be a good idea for those looking to supplement their retirement income or finance significant expenses. However, they can affect your estate’s value and might have tax implications, so it’s crucial to seek advice before proceeding.
The “best” life insurance depends on individual needs. Term life insurance offers coverage for a fixed period, while whole life insurance provides lifetime coverage and may accumulate cash value. It’s essential to assess your financial goals, responsibilities, and budget before deciding.
The younger and healthier you are when taking out life insurance, the more likely you are to secure lower premiums. However, the ideal age often coincides with life events like buying a home, getting married, or starting a family, when financial responsibilities increase.
Those with significant outstanding mortgage balances, especially if their families would struggle to maintain mortgage payments in their absence, benefit most from Mortgage Life Insurance.
Mortgage Life Insurance specifically covers the outstanding balance of your mortgage. If the policyholder dies, the insurance will pay out an amount that matches or contributes to the remaining mortgage, ensuring the mortgage is either cleared or significantly reduced.
No, Mortgage Life Insurance is not mandatory. However, some mortgage lenders might require some form of life insurance to ensure the loan’s security, especially if the primary earner’s loss would jeopardise the family’s ability to keep up with payments.
With Mortgage Life Insurance, if the policyholder dies, the insurer pays out a lump sum directly to the mortgage lender to clear or reduce the outstanding mortgage balance.
Yes, exclusions can vary by policy. Common exclusions might include death due to pre-existing medical conditions, if not declared, or certain high-risk activities. Always read the policy documentation and speak with your insurance provider to understand any limitations or exclusions.
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