Answered by Andrew Jenkinson
There are many different forms of life insurance available. Term insurance is often referred to as ‘standard’ life insurance. This type of cover pays out a lump-sum benefit if you were to pass away during the policy ‘term’.
Mortgage term life insurance is essentially a term assurance plan taken out specifically to cover a mortgage loan. Please note though that there are two very different types of mortgage life insurance, which are as follows:
Decreasing term insurance – With this plan the amount of cover declines over time, reaching zero at the end of the policy ‘term’. This policy type is often taken out to protect a capital/principal repayment mortgage where the level of debt is being paid down over time.
Level term insurance – With this plan the amount of cover remains ‘level’ over the policy term. This policy type is the same as standard life assurance and is often used to protect an interest-only mortgage as the amount of debt outstanding remains fixed over time.
When protecting a repayment loan the decreasing term life insurance route is the most popular option as the monthly premiums are much lower (given that the level of cover falls over time).
When people ask the ‘what is mortgage life insurance’ question it is also worth noting that the life plan can include critical illness cover. With this option added the policy would also payout if you were to suffer a serious illness or injury specified in the plan (which usually consists of around 35 ‘critical illnesses’, including cancer, heart attack and stroke).
Frequently Asked Mortgage Protection Insurance Questions
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Very helpful and explained well the whole process of getting this insurance. Thank you.