Level Term Mortgage Life Insurance

Level Mortgage Term Insurance pays out a lump sum equal to the amount outstanding on your loan should you pass away within the policy term.

The amount of cover remains fixed throughout the policy, so you’ll receive the same in a payout in the first year as you would in the last year.

Level Life Insurance is typically used to cover an interest-only home loan. The amount of cover will remain the same throughout the life of the policy, just as the amount of mortgage debt will remain the same.

On the other hand with Decreasing Mortgage Life Insurance the level of cover falls over time. It is typically used to protect a straightforward repayment mortgage, where the amount of capital you owe also falls over time.

Decreasing Life Insurance is usually cheaper than level cover because as you get older and the risk of you making a claim increases, the sum insured is reduced.

If you have a joint home loan with your partner then you may want to take out a Joint Mortgage Life Insurance policy. With joint life cover the policy will pay out a lump sum if either partner dies, usually on the first incidence of death.

This means that if either yourself or your partner were to pass away the policy would pay out the full sum insured, thus leaving the remaining partner with the funds to pay off the mortgage in full.

It is important to compare the price difference between a joint policy and two separate policies as it’s often the case that two separate policies – which provide double the level of cover – can be obtained for a small additional premium each month compared to a joint policy.

Using this method also means the surviving partner would still have their own level of cover remaining should one partner pass away.

With almost all Life Insurance policies you have the option to add Critical Illness Cover. This protects you in the event of you suffering a critical illness as well as if you were to pass away.

Critical Illness Insurance works by paying out a lump sum benefit if you suffer one of the critical illnesses listed in the policy and that illness is of a severity specified in the policy’s terms.

A typical policy will provide protection against the chances of you developing one of around 40 critical conditions, but there are plans which cover fewer than five illnesses and those which cover more than 100, so it pays to check the policy terms and conditions carefully.

The most common conditions covered include:

• Cancer
• Heart Attacks
• Strokes
• Multiple Sclerosis
• Parkinson’s Disease

You’ll face an increased premium if you add Critical Illness Cover because of the increased risk of you suffering a critical illness is much higher than the risk of you passing away.

Terminal Illness Insurance is included as standard on most Life Insurance policies. It will ensure the policy pays out early if you’re diagnosed by a medical practitioner as having less than 12 months to live.

It’s very different from Critical Illness Cover, although because the two sound very similar people often get them confused.

With Critical Illness Insurance the illness doesn’t have to be terminal; for Terminal Illness Cover to kick in, you must have been told you have less than a year to live.

Writing your policy into trust is a very important detail that often gets overlooked.

Doing so ensures your loved ones (the nominated beneficiaries) receive the Life Insurance payout promptly and tax free.

If you don’t write your policy into trust, it can end up forming part of the deceased’s estate, whereupon it may be chargeable for inheritance tax purposes.

Not writing your policy into trust can significantly increase the time it takes to receive any benefit payment as it may need to go through probate.

While a Mortgage Life Insurance policy is typically less important to write into trust because the benefit is destined straight for the mortgage lender, it costs nothing extra to write the policy into trust and many choose to do it anyway for simplicity’s sake.