I want to take out Mortgage Life Insurance but wanted to know how long should I set the term of the cover. Does this matter?
- Michael Barrow
- Independent Protection Expert
With Mortgage Life Insurance policies it usually makes sense to set the term of the policy equal to the length of time you have remaining on your mortgage.
For example, supposing a new mortgage is taken out and is set to be repaid over the next 25 years, then (for mortgage protection purposes) it is common to set the term of the Life Insurance policy at 25 years also.
Implication for Decreasing Cover
With Decreasing Term Insurance to cover a principal repayment mortgage the amount insured under the policy declines over time. Thus, if the term of the policy it set equal to the term of the mortgage then the plan would end with zero cover remaining at the end of the mortgage.
This is naturally the most cost-effective method of gaining mortgage life protection.
Cover not usually tied to the mortgage
However, it is not usually the case that the life policy actually has to be tied to your loan. As such, if you wanted the plan to run longer for additional family protection purposes then this is usually fine.
As the term length is longer the amount insured would decline at a slower pace, therefore also providing a little extra cover over and above the amount outstanding on the loan during the term of the mortgage. However, for more specific family cover you could also consider a separate life policy.