Life cover is usually taken out for either family protection or mortgage protection reasons. It is very common for people to ask what the difference is between life insurance and mortgage life insurance, and this short guide helps to answer this question.
Life insurance comparison
All life cover pays out should the policyholder pass away, whatever the plan is taken out for family protection or for mortgage protection purposes. The key difference relates to whether the cover provided by the plan remains fixed or declines throughout the policy term (the period of cover).
If the amount or ‘level’ of cover remains fixed it is often called level term insurance, which is another name for standard life cover. On the other hand, if the level of cover declines throughout the term of the policy it is called mortgage term life insurance, or more accurately decreasing term mortgage life cover.
Which type do I need?
Whether you need level term insurance (standard life cover) or decreasing term insurance (mortgage life cover) will depend on the type of loan you have. There is a large difference in these policy types so it is very important to make sure you get the right one.
To put it simply, if you have a repayment mortgage (where your monthly payments consist of interest and principal repayment) the most appropriate policy is a decreasing term plan. If you have an interest only loan (where the amount of debt remains fixed over time) the most appropriate policy would be a level term plan.
What is the difference?
With a level term plan the amount of insurance cover remains fixed over time so that it covers the constant amount of debt associated with an interest only loan. With a decreasing term plan the level of insurance cover declines over time so that it is consistent with the declining amount of debt associated with a principal repayment loan, and decreasing term policies require a lower monthly premium for this reason.
Can we help?
We are always here to help should you need to run through your mortgage protection life cover options. One of our expert and impartial advisers can not only assist you with finding the most appropriate and competitive policy but they can also help with the application form. As we are independent we compare the quotes offered by all leading UK insurers so you don’t have to.