A mortgage can place a large financial on your loved ones if you die before it has been paid off. Regardless of the circumstances, your mortgage provider will need to recover the money owed. Mortgage life insurance can be used to protect your home, reassuring your family during this difficult time.

What is mortgage life insurance?

In this article, we’ll help you understand how mortgage life insurance can protect your family’s home should you pass away before your mortgage term ends. Upon your death, the policy pays out a lump sum to your family to help pay off the remaining balance on the mortgage. 

In essence, mortgage life insurance ensures that your family can stand on their own two feet financially, as well as protecting your home - should the unthinkable happen to you.

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How it works

Mortgage life insurance is available in 2 types of term life cover: 

  • Decreasing term - The policy pay-out diminishes over time as you begin paying off your mortgage. It can also be used to help with other loans and debts you don’t want your family to be left with when you’re gone. This is usually the standard option taken out alongside a repayment type mortgage. It is also typically cheaper than level term cover, as the sum assured reduces over the life of the policy. 

  • Level term - Generally the more expensive type of cover, this is popular amongst people with an interest-only mortgage. The policy payout is fixed, meaning your family receives the same amount regardless of when you die. When you die, the pay-out can be used to cover the remainder of the mortgage, helping your family through an already difficult time.

With term life insurance, your cover is in place for a set amount of years - known as the policy term. Should you outlive this policy term, then you will no longer be covered.

Typically, the length of your policy can be calculated by how long you expect it to take for you to pay off your home's mortgage.

When taking out a mortgage cover, you will begin paying monthly premiums to your insurance provider. If you stop making payments, your cover will be voided and you won’t receive any money back.

Do I need mortgage life insurance?

A house is more than just bricks and mortar - it’s your home and a place full of your family's memories that certainly warrants protection. The benefit with mortgage life insurance is that it can cover more than just a mortgage, but can also support your family with:

Obviously, if you don’t own or rent a property, you won’t need a policy - but it’s still worth considering taking out some form of life insurance to protect your loved ones.

The cost of mortgage life insurance

Just like most types of life insurance, there are several factors that can determine the cost of your policy pay-out and premiums. When applying for life insurance, your provider will need to know information such as:

The general rule of life insurance is - the younger you are, the less you are likely to pay, therefore it’s best to take out cover as early as possible.

Many mortgage lenders encourage taking out a life insurance policy alongside a mortgage. Some lenders may offer a policy - however, it may not be the best option financially, so it’s better to shop around.

To get a better understanding of how much you can expect to pay for cover, simply complete our online form for a quote.

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Is mortgage life insurance the same as mortgage payment protection?

Though they sound similar, mortgage life insurance and mortgage payment protection insurance work differently from each other.

Whilst mortgage life insurance covers you for death, mortgage payment protection covers you if you are unable to work due to sickness, injury, or just being out of work. Another difference is that mortgage protection pays monthly, rather than one lump sum pay-out.

So whilst mortgage payment protection provides cover, it focuses more on the short term and of course, does not cover death.

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Alternatives to mortgage life cover

Though your mortgage provider will advise you to take out a mortgage cover, there are other alternatives available.

Whole life insurance- Typically the most expensive form of cover, whole life policies cover you for the remainder of your life. Unlike term life cover, your family is guaranteed a pay-out no matter when you die (as long as you keep up with your premium payments). The pay-out can be used to pay off the remaining balance on a mortgage, amongst other things.

Critical illness cover - This is usually an add-on to a life insurance policy. Not only does it cover death, but it can also pay out if you become seriously injured or ill. If you opt into critical illness cover, it’s best to check what is covered as different as not all insurers cover the same things.

Joint mortgage life insurance - Many couples take out a joint life policy as it can be cheaper than two individual policies and easier to manage. Joint life policies can work on either a first or second death basis.

With first death, the policy pays out after the first policyholder dies. The surviving policyholder can then be supported financially by the pay-out sum. With second death, the policy only pays out once both policyholders have died. The pay-out can be used to support your children and their future.

Family income benefit - When you die, your family receives monthly tax-free payments to make up for the loss of income. When applying, you decide your level of cover - the higher the amount, the greater your premiums. A family income benefit generally lasts until a specified date (the end of the policy term).

Here to help

Cavendish Online is committed to helping you find the most suitable and affordable option for life insurance. If you're looking to buy cover for you and your family - or are unsure about which policy is right for you - we’re here to help!

Call for a quote today...

Our team of expert protection consultants are here to help. Call for a quick quote and more information now: 

01392 241 850(Monday to Friday, 10am to 6.30pm)

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