Mortgage life insurance, sometimes called mortgage protection insurance, is a form of life insurance designed to pay-out your mortgage when one of our loved ones dies unexpectedly. This means that you won’t have to worry about keeping your house should the worst happen.
means the pay-out will decrease in line with the outstanding amount of your mortgage. The lower pay-out means the premiums for this type of mortgage life insurance are typically less than level term mortgage insurance.
means the guaranteed amount to be pay-out will be fixed over the duration of the mortgage term.
Essentially when you die the amount you are insured for will be paid to your beneficiaries. That money will be used to pay off the mortgage, hence the name. Some folk think that the mortgage company gets the money but they don’t – it goes to your loved ones.
Either fixed-term mortgage insurance or level term mortgage insurance will pay off your house when you die. Fixed-term mortgage insurance has higher premiums than decreasing term insurance so you need to consider how much you want to leave coupled with how much you want to pay for the policy.
Yes mortgage protection insurance is a form of life insurance that has been badge in such a way as it makes clear what the intention of the policy is to do – pay off your mortgage when you die. The duration of a mortgage life insurance policy is usually for the length of the mortgage – makes sense! It’s worth noting that the pay-out don’t have to be the same as the mortgage – it can be more if you want to leave some extra money to make your loved ones life as comfortable as it can be.
When the mortgage has been paid off you don’t really need life insurance to ensure your loved ones retain their home – so the policy stops. If you want cover for your entire life you should consider a life insurance policy but also consider what financially difficulty will result should you die after the home has been paid off.
There are no legal requirements to get life insurance when you are taking out a mortgage. But if we stop for a moment and think about the worst-case scenario – one of your loved ones dying – would the loss present a financial issue keeping the house. If the answer is yes, and for most of us it will always be a yes, then you should always consider taking out either level of term mortgage insurance or decreasing term mortgage insurance.
