Mortgage term insurance is a form of life insurance which is also known as term assurance. Should the worst happen a tax-free lump sum would be paid out to your family upon death to help cover the finanicial obligation which is left behind.
Pros and cons of mortgage term assurance?
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The cover provides a level of flexibility including options to change the policy terms if moving home or making improvements |
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Mortgage term insurance ensures a tax-free cash lump sum to cover your outstanding mortgage should the worst happen. |
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Mortgage term assurance is limited to paying out on death only although you have the option to include critical illness cover |
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The policy holds no maturity value if you survive beyond the policy term. |
Level or Decreasing Mortgage Term Insurance
The type of cover you require will depend on the type of mortgage you have. If you are currently repaying both the interest and a proportion of the capital borrowed this is a principal repayment mortgage and is often financially protected by a decreasing term insurance policy.
A decreasing term insurance policy is designed to cover a reducing sum over the period of time the protection is required. As you payoff your mortgage so your outstanding loan decreases and the level of cover you require from your life insurance decreases in line with this.
However if you have mortgage where each month you are only covering the interest on the loan then you have an interest only mortgage. With an interest only mortgage the loan is fixed over the time period, you continue to borrow the same sum from the beginning to the end of the term. As the amount of loan remains fixed over time you will require a life insurance policy which also has a fixed level of cover, this is known as level term insurance.
Do I need mortgage term assurance?
What would be the financial impact on your family if you were to pass away? Would your partner have enough earnings and savings to make mortgage loan repayments? If not, then mortgage term insurance could be a solid way to protect their future.
Factors to consider when buying a policy?
- What tax-free sum would your family require to cover your financial obligations should the worst happen?
- How long would you require the policy to last?
- Is the mortgage in joint names, if so do you require a joint policy?.
- Would you like the monthly premiums to be fixed or variable over the term of the policy?
- Have you considered financial protection to cover you mortgage should you be diagnosed with a critical illness?
If you are in the market for a plan and want some direction, maybe more information, some advice or quotes to get an idea of price then let us know. We deal with insurance all day, everyday and are thus in a great position to help you find what you are looking for.
If you are at the very early stages of house buying and finding a mortgage and insurance you might want to consider the guides produced by the Council of Mortgage Lenders.
