When you have a repayment mortgage the value of your outstanding mortgage steadily decreases as your monthly mortgage repayments pay off both the interest and the capital you borrowed. (Please note that Mortgage Life insurance is not suitable if you have an interest only mortgage. For interest only Mortgage protection you need to take out standard Level Term Life Insurance.)
Therefore, the amount of life cover you need for a repayment mortgage decreases as time goes by. To achieve this the insurance companies offer a special type of policy, sold under the name of Mortgage Life Insurance, where the sum insured decreases in line with the value of your outstanding mortgage. The life company then sees to it that if there is a claim, the proceeds from the policy are paid to your mortgage lender.
In order to estimate the value of your outstanding mortgage the life company will ask you how much is currently owed on your mortgage, how many years your mortgage has outstanding and the likely interest rate. In doing its’ calculations, the insurance company will assume that you keep your mortgage repayments up to date and you do not fall into arrears.
What are the most common optional extras you can have with your
Mortgage Life policy?
When you are pricing your Mortgage Life Insurance policy you will normally be asked whether you want either of two optional extras: -
Critical Illness insurance incorporated into a Mortgage Life Insurance policy.
This provides you with a capital sum to pay off your repayment mortgage
if you are diagnosed with a critical illness. Unless you specify otherwise, the sum insured for critical
illness will also decrease over time in line with the mortgage life
cover and the value of your mortgage.
However, please note that if the policy pays out for a critical illness – the policy is finished. It doesn’t pay out again if you die!
This type of critical illness policy where the cover decreases over time, is less expensive than full Critical Illness (where the sum insured is constant) and for most modern families it should be seriously considered. Try getting a quote and discuss it with your life insurance adviser.
Premium Protection
This is an option whereby the insurance company pays the monthly insurance
premiums if you were off work through illness, or became unemployed.
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