Mortgage life insurance is an important consideration for homeowners who want to ensure their loved ones are financially protected after they’re gone. But with so many options available, how do you know which type of policy is right for you?
Choosing the right type of mortgage life insurance can be a tough decision, but it’s important to understand the differences between term and permanent policies. In this article, we’ll explore each type of cover to help you make an informed decision about which is right for you.
Do I need life insurance cover for a mortgage?
The answer to this depends on your individual situation and the specific needs of your family. If you have dependents who rely on your income, such as children or elderly parents, it is important that you have some form of life insurance in place in order to provide financial security for them upon your death.
It’s also essential to consider how you want your mortgage debt to be managed when you’re no longer around. For many people, term life insurance is a suitable form of cover that can pay off the outstanding balance on their mortgage in the event of their death.
Decreasing term life insurance
Decreasing term life insurance is a type of policy that decreases in cover over time as you pay off your mortgage balance. This means if you die before it’s repaid, your family will have enough money to pay off or put towards the remaining balance.
As with any type of term life policy, you are covered for a set period as agreed with your insurer and the premiums are fixed throughout this period. The policy only pays out, providing that you die within the agreed term. If not, the policy expires.
The main benefit of decreasing term cover is that it usually works out to be the most cost effective option, as the premiums are lower than for permanent cover. However, a payout is less likely as cover is limited.
Permanent Life Insurance
Permanent life insurance (typically known as whole life insurance) offers a higher level of cover. It provides cover for the rest of life, which can also cover your mortgage. Premiums for whole life cover are often higher than decreasing term life cover.
One benefit is that the cover remains the same throughout the life of the policy. This means that your family will receive the same amount, regardless of how much you have paid off on your mortgage.
Whole life cover can also include investment options. Your insurer takes the money from your premiums, placing them into an investment fund. If the investment succeeds, you may receive a bonus added to your policy. Alternatively, you can choose what investments to make.
How to choose the right type of policy
When it comes to choosing the right type of life insurance, there are a few things that you should consider:
Your budget: It’s important to work out how much you can afford to spend on premiums and whether this would be more suited to a term or permanent life policy.
Your needs: Think about what your family would need in the event of your death, and determine whether a decreasing term policy or a permanent policy would best suit their financial needs.
Your circumstances: Consider your personal circumstances, such as your age, health and lifestyle. These can all impact on the type and amount of cover you need.
Overall, it’s important to weigh up the cost and benefits of both types of policies before making a decision. It’s also sensible to seek professional advice from an insurance broker or advisor if you are unsure.
Cost of mortgage life insurance
Just like any type of insurance, the cost will vary depending on your individual circumstances. Factors such as your age, health and lifestyle can all influence how much you pay for cover.
In most cases, the younger you are and the better your health, the less expensive the premiums will be. On the other hand, if you smoke or have a medical condition that could affect your life expectancy, this could result in higher premiums.
The policy you choose also impacts on the cost. As mentioned above, whole life cover is typically more expensive than decreasing term cover.
It’s worth shopping around for the best deal as different insurers may offer different levels of cover at varying prices. It’s also a good idea to speak to an insurance broker or advisor who can help you find the right policy for your needs.
What about critical illness cover?
Critical illness cover is a type of insurance that pays out a lump sum if you are diagnosed with a serious medical condition, such as cancer or stroke. This money can be used to help you meet the costs associated with your recovery such as medical bills and lost income. It can also be used to pay off outstanding debts, such as your mortgage.
Like other types of life insurance, the cost of critical illness cover will depend on your individual circumstances. It’s worth seeking advice from an insurance broker to help you find the right policy for you. It can be bought as an add-on to your existing life insurance policy, or as a stand-alone product.
Don’t take the risk – make sure you’re covered
When it comes to protecting your loved ones in case of unexpected events like death, disability or illness, you can’t afford to take the risk. That’s why mortgage life insurance is so important. It ensures that your mortgage is paid off in full, even if you’re no longer able to make payments on it.
Ultimately, the choice between term and permanent mortgage life insurance comes down to your individual situation. Consider factors such as your age, health, financial goals, and budget when making your decision. And remember, don’t take the risk – make sure you’re covered with life insurance.
