What is mortgage protection insurance?
Mortgage protection insurance is a type of life insurance that effectively helps your family pay off a mortgage or any long-term loan if you pass away during the policy term. This insurance is generally intended to cover the remaining mortgage balance. However, with a repayment mortgage, the amount owed decreases over time. As a result, the coverage offered by your mortgage protection insurance also reduces over time, which is why it is commonly known as decreasing term life insurance.
If however, you are on an interest only mortgage, you would want the cover amount to remain the same as your mortgage balance is not reducing. This type of cover is often referred to as a level term life cover.
What does mortgage protection cover include?
This varies by provider, but it typically includes:
- Death protection – a lump sum payout to your beneficiaries if you pass away while the policy is in force.
- Lump sum payment – some providers allow you to select coverage of up to £5 million, which you receive in full after a successful claim.
- Terminal illness coverage – if you are diagnosed with a terminal illness that meets the provider’s criteria, you can access your lump sum early.
Is mortgage protection insurance necessary if you have a mortgage?
While there is no legal obligation to obtain mortgage protection insurance when you have a mortgage, some mortgage lenders may require you to purchase a policy. It’s definitely something to consider, as the future is unpredictable, and you would want to ensure that your loved ones are taken care of in the event of the worst-case scenario.
If you’re interested in obtaining life insurance to cover your mortgage, please reach out, and I can help you explore your options. The right type of insurance for you will depend on your individual circumstances.
What kind of payout can my family expect from a mortgage life insurance claim?
The payout your family receives after a successful claim will depend on the type of coverage you have. With decreasing term coverage, the lump sum will diminish over time as your mortgage balance decreases on a repayment mortgage. Your family can use this amount to pay off the mortgage. In contrast, if you have level term coverage, where the coverage amount remains constant, your family can use the lump sum as they see fit. This payout could not only help maintain their current living standards but also assist in paying off an interest-only mortgage. Additionally, it could contribute to general living expenses or monthly payments, such as rent.
