Is there such a policy as interest-only Mortgage Life Insurance? I am looking for life insurance to pay off our mortgage if either myself or my wife were to pass away but there seems to be more than one type of Mortgage Life Cover.
Yes, it is possible to take out Life Insurance specifically to cover an interest-only mortgage. For this type of protection it is usually best to take out Level Term Mortgage Life Cover.
With an interest-only mortgage the level of debt outstanding on the loan remains fixed over time as only interest on the loan is being paid. As the level of debt remains fixed over time so should the level of cover on your life insurance plan.
How Does Level Term Insurance Work?
With level term insurance the amount of cover remains fixed over time so it is usually the most appropriate policy to cover an interest-only mortgage.
For example, if £200,000 of life cover is taken out at the start of the plan the policy will still contain £200,000 of cover right up until the end of the policy term.
This means that if you were to pass away at any point during the policy term the plan would payout a lump-sum amount sufficient enough to repay the loan. The other type of mortgage life cover is Decreasing Term Insurance where the level of cover declines over time, which is usually used to cover a repayment mortgage.
Obtaining Joint Life Cover
With Level Term Life Cover it is possible to take out a joint life plan with your partner if you have a joint mortgage. It is also possible to take out Life Insurance with Critical Illness Cover to protect against the mortgage risk of suffering a serious illness or injury.
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