Mortgage life cover
No one wants to think about death. This is especially true when you are going through the process of buying a new home or moving into your new home. The reality of effective financial planning, though, is that it forces you to protect you and your family against the unfavorable “what if” scenarios. What if you buy a home and take on a large mortgage for your family. Life is great as long as your family has your monthly income to keep up with the repayment of the mortgage loan each month. However, if something was to happen and you were no longer around, your family would be stuck. The home would likely be repossessed at some point if a new source of funding is not established. Your solution to this problem? Mortgage life cover (as opposed to MPPI).
Mortgage life cover, often referred to as mortgage life assurance, or more specifically, mortgage decreasing term life assurance (MDTLA), pays a lump sum balance on your mortgage if you die during the specified term of the insurance plan. The lump sum is typically paid to your family, though some plans specify that the payout is used to repay the actual mortgage balance. Either way, this financial security means a great deal to your family. You also have the peace of mind to know that your family is protected if something unfortunate occurs.
Mortgage life cover is not to be confused with mortgage payment protection insurance (MPPI). MPPI is part of the payment protection sector that pays monthly benefit payouts to assist in making monthly repayments on your mortgage. This protection is used to help you through periods of unemployment from involuntary redundancy, prolonged illness, or accidents. In other words, it is more of a short-term protection to sustain you, as opposed to a death benefit as is the case with mortgage life assurance.
The benefits of mortgage life protection are fairly obvious. However, it is important to understand your options in the marketplace. Many lenders like to pressure or trick people into buying their expensive mortgage life assurance policies while taking on a new mortgage. Do not be pressured. You are not obligated to buy this protection in order to obtain a loan. Your best value and most affordable MDTLA solutions are usually bought from independent brokers who offer top products at much lower premium costs.
As is the case with many protection products, mortgage life cover offers benefits that are ideally never realized by the covered person. Hopefully, you will far outlive the policy term and you will be able to repay the mortgage on your home with your income. However, the security is certainly worthwhile given the modest costs to buy protection through a reputable provider. Here are a few key things to remember about mortgage life cover:
- It is not mortgage payment protection insurance
- Your mortgage balance can be repaid with the lump sum benefit payout
- You do not have to buy cover from your lender - Look to independent brokers
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.