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So
if, for any un-foreseen circumstances, you are un-able to afford
the repayments, your home will be at stake. A Mortgage protection
policy is a pure life insurance policy with a falling sum assured,
designed to protect the remaining owing of a repayment mortgage.
What mortgage protection provides
Mortgage Protection insurance provides you with cover, should
anything happen (such as losing your job) which may cause you
to be unable to keep up repayments.
Or should the person paying the monthly repayments happen to die,
there may be no way for the bereaved to keep up the mortgage repayments.
A potentially devastating situation could occur where as by your
dependents may lose the house. You need to take out a life insurance
policy to cover these circumstances.
You will not need an unattached insurance policy with an endowment
mortgage, as in this instance the life cover is already included.
It’s not nice to dwell on the worst things in life. Which
is why there are straightforward Mortgage Protection Plans to
cover your family if you die or become terminally ill.
The nature of a repayment mortgage is that you take out the
loan for a certain amount and that you repay the loan over a certain
period of time. All being well, after that term is up, you will
have paid off your mortgage. As the term progresses, thus the
amount that you owe decreases.
Term insurance policies
A term insurance policy is quite alike, in that you are again
covered for a certain amount over a certain period of time, with
the difference being that the insurer will pay out should an event
occur where as by you are un-able to make the repayments. This
event would be your death in the case of term insurance.
If you were to take out a mortgage of £200,000, you would
need £200,000 of cover with your policy. Once you pay the
monthly payments, at the end of a year you may have £195,000
left (with most of your monthly payments going towards interest
in the first year). So, at the start of the second year, you would
only need £195,000 of cover. After each premium is paid,
you would need a decreasing amount of cover, which is why mortgage
protection is also called decreasing term insurance.
The amount assured in a mortgage protection policy reduces by
an agreed amount, which is usually the same, over the course of
the term. The sum will only be paid out should the person whose
life is insured, die during the course of the term. There is no
surrender value and premiums will be lower than for level term
insurance, due to the decreasing sum assured.
It is also worth bearing in mind that the fixed term means you
have no flexibility, and you can't lengthen the cover.
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