There are many insurance policies available and many different terms you will hear when considering your insurance needs. How can you tell if mortgage life cover is right for you? Unlike a private mortgage insurance, which would protect you in case you couldn’t make a mortgage payment on time, mortgage life insurance is designed to protect the repayment of your mortgage. In other words if you died before the mortgage was paid, but were covered by mortgage life insurance, the policy would pay out a lump sum that would ensure the outstanding balance is paid in full.
There are two types of mortgage, repayment mortgage and interest only mortgage.
At the beginning of the policy the amount you need to pay will be calculated based on the length of the mortgage, the rate of repayment, and the sum that would be required to clear the balance in full. The longer you make payments the less your insurance would need to pay out in the even to death, and possibly terminal illness. The full cost of insurance will be equally divided over the life of the policy so that your premiums are the same for the duration of the policy. If you pay your mortgage in full and are still in good health you will not receive any payout. If you have accrued arrears by not making your mortgage repayments but then make a claim on your insurance it should be noted that the payout will not include any arrears you owe the bank. The payout will reflect the balance that should be owed assuming you did not default.
Interest Only Mortgage
As you are only repaying the interest on your mortgage you must make arrangements to pay the capital off at the end of the loan period. Cover for this type of mortgage is often referred to as Level Term Life Insurance. You can decide how long you need the cover for and if you make a claim against the policy during that time a set figure will be paid out, regardless of what is owed. It should be noted that whilst you can certainly take out a policy for the entire duration of your mortgage, say 25 years, you can also choose to take a shorter term if that would suit your financial circumstances better.
With either option you can obtain mortgage life cover through your loan provider usually, but it is considered good practice to speak to an independent financial advisor as there are other ways to ensure you can cover your mortgage obligations in case of death or terminal illness.
The insurance industry is currently undergoing quite an upheaval right now. The way in which premiums are being calculated is being amended to include gender equality. When your insurance provider is assessing your potential risk they cannot penalise you for being male or allow you a discount for being female. Typically this has been the case for several decades as women tend to live longer than men making them a much safer risk for insurance companies to cover.
There are also new regulations coming into play which will affect how cover is sold. New tax initiatives will see insurance companies handing over more in the way of tax and being required, by law, to provide a financial safety net to their clients in case the insurance company collapses.
All in all insurance, of any kind, is about to get much more expensive. Just how much more expensive remains to be seen , though estimates range between 20 to 30% ? The real question is, with something as important as your home at stake can you afford to not be insured?
Jacob Chapman is a columnist with experience in the financial field. You can read his articles aiming to help individuals get the right mortgage life insurance for their needs on www.mortgagelifeinsurance.org.uk . Or if you are interested in life assurance you can also visit www.lifeassurancequotes.org.uk .