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Risheka WallsWhat is level term life insurance?
The purpose of level mortgage term insurance is to pay-out a tax-free lump-sum equal to the amount outstanding on your loan should you pass away within the policy term. Naturally, for the life cover and loan amounts to be the same at a potential claim stage they will need to be set equal at the start of the policy.
Level term insurance is very akin to standard life cover except that the policy is taken out for mortgage protection purposes. Level term life insurance is 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.
Level term mortgage life cover pays out a tax-free lump-sum either to the remaining partner (with a joint plan) or to the personal estate of the policyholder upon death (the funds would then be distributed to the mortgage lender). For single term insurance plans setting up a trust can help to speed up the process repaying the mortgage as the funds can be specifically set aside for a family member.
What about decreasing term insurance?
The most common form of mortgage life cover is decreasing term insurance. It is the most popular form of cover because it is designed to cover principal/capital repayment home loans (where the loan is completely repaid at the end of the mortgage term).
With decreasing term insurance the level of cover declines over time so that the amount of cover tracks the amount of home loan debt outstanding, with the sum insured reaching zero at the end of the term of the policy (as the mortgage would have been repaid at this point).
Joint cover for you and your partner
If you have a joint home loan with your partner then you may want to take out a joint mortgage term life insurance policy. With joint life cover the policy will payout a tax-free lump sum upon the first 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 home loan debt in full. Please be aware that when a joint term life policy pays out the plan then terminates and the surviving life is left without cover (with is usually fine as the purpose of the cover is to protect the mortgage, which will then have been repaid).
It is important to compare the price difference between a joint policy and two separate policies. It is often the case that two separate policies which provides double the level of cover can be obtained for a small additional premium each month, using this method also means the surviving life would still have their own level of cover in tact should one partner pass away.
Can I include critical illness insurance?
Mortgage critical illness cover can also be added to level term mortgage insurance plans. The two forms of loan protection would be combined under one policy and it would payout upon the first event of either death or suffering a critical illness. The types of critical illnesses covered include heart attack, stroke and cancer (reputable policies include about 35 conditions).
Do I need advice?
If you would like some more information, advice or simply want to compare mortgage insurance quotes from the leading insurers, please do not hesitate to get in touch, we are here to help, just give us a call on 0208 432 7333.
If you would like to compare quotes from the market leading mortgage protection insurers please complete your requirements in the Life Quote box at the head of this page and select either level or decreasing cover with critical illness included.
For information relating to mortgage life insurance critical illness products please navigate to the website of the Financial Services Authority’s MoneyMadeClear. For general information and news relating to the insurance market please navigate to the website of the Association of British Insurers.
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