Mortgage Life Cover explained

No one likes to think about death, but it’s a question that has to be faced: will your loved ones be protected financially should you pass away suddenly? Will they be able to maintain a decent standard of living? Could your spouse handle the mortgage or loan repayments on his or her own? Thankfully, there are a lot of products on the marketplace that can help make sure your nearest and dearest will be taken care of financially in the event of your untimely death.

There are generally speaking, two types of life insurance: Life Cover, and Mortgage Life Cover. Life Cover pays a fixed cash sum upon your death in return for a monthly premium. Mortgage Life Cover, on the other hand, is an alternative to Life Cover that is aimed at protecting what is likely to be your biggest financial commitment – your mortgage.

The longer you keep a mortgage (and assuming you keep up with the repayments), the less you owe to the bank or building society that provided you with a loan. Mortgage Life Cover is a form of life insurance that is tied into the amount you still owe to the bank; the longer you hold the insurance policy without dying, the less money your beneficiaries will receive upon your death, designed to balance pretty much with the amount you still owe on your mortgage (as opposed to Life Cover, which will pay the same amount no matter how long you hold the policy for). While this sounds like financial trickery on the part of the banks – how can it be better to receive less as the total amount of money you’ve paid in via monthly premiums increases? – the average monthly premium for Mortgage Life Cover is considerably lower than an equivalent Life Cover package, and so may be tempting if you feel the need to have some form of life insurance but don’t think you can afford a particularly expensive policy.

As ever, there are several types of policy available. As with most Life Cover policies, the majority of Mortgage Life Cover policies include a Terminal Illness Benefit at no additional charge, designed to pay out a lump sum then and there should you be diagnosed with a terminal illness and given less than a set amount of time (usually 12 months) to live. Similarly, it’s possible to get joint policies that include both you and your partner, which generally pay out upon the death of the first insured party. There are some caveats to this – not all companies offer this service, and others won’t honour this in the latter months of a policy (for example, during the last 18 months of your term) – and so it’s important to make sure you know exactly what you’re buying before you sign a contract.

For various reasons, not everyone feels as though standard Life Cover is suitable for them. However, checking out the possibility of purchasing a Mortgage Life Cover can prove to be the best of both worlds: the cost of monthly premiums can be much reduced, and you can still have the peace of mind that comes from knowing your family are protected financially in case the worst happens.