Mortgage Life Insurance
A type of insurance that is specifically created to help protect a mortgage repayment is known as Mortgage Life Insurance. The policy will provide a capital sum that is just enough to repay the outstanding mortgage repayment once the policy holder dies.
Kinds of mortgage life insurance:
Depending on what kind of mortgage you possess, an interest-only mortgage or a repayment mortgage, you will have to choose between one of the two main kinds of cover plans, Decreasing Term Insurance and Level Term Insurance.
Decreasing term insurance:
This is suitable for those people that have a repayment mortgage. Over the course of the mortgage period, the loan balance begins to decrease. Hence, the decreasing term insurance policy with a sum of cover will go down with the balance of mortgage. In other words, your life insurance amount should match with the outstanding balance on your mortgage. This ensures that you will have enough funds to pay off the remaining mortgage if you die so as to not create an additional burden on your family.
With this kind of insurance, the cover is generally used over the mortgage term and payment will be made in case you die as per the terms of the policy. After the expiry of the policy, and if you are still living, you will not receive any payment and the contract becomes null or void. Despite not having any surrender value, this form of insurance is cost effective and will help protect your family and home during the mortgage life.
Level term insurance:
This form of insurance is for those people that possess a repayment mortgage, but where the balance of principle stays the same during the entire mortgage term and the repayments that are made by the owner of the property cover only the interest payments on mortgage.
The insured sum stays the same during the entire term of the policy and this is so because the balance of principle also stays the same during the mortgage period. Hence, the assured sum, in the case of a death of the policy holder will be a fixed amount. Just like with the decreasing term insurance, level term insurance does not have a surrender value and no payment will be received by the policy holder if he is still alive after the expiry of the policy.
Terminal illness benefit:
Both insurance covers generally include a terminal illness cover. Such a cover ensures your mortgage will be cleared once you are diagnosed with a terminal illness rather than actually waiting for you to die.
Critical illness cover:
Critical illness cover is another kind of insurance policy which can be added to both the level term and decreasing term insurance so as to provide an extra layer of protection.
If you are diagnosed with a critical illness, your mortgage will be cleared under this cover. If you recover from the illness, you can keep the payout, though the policy becomes void and null after your claim.