Protecting your mortgage is an important consideration when you buy a house. It might not be the happiest of concepts, but it could make a huge difference to your loved ones. Known as mortgage protection life insurance, or decreasing term life insurance, it is a popular type of insurance to help cover the cost of your mortgage if you were to pass away.
Mortgage protection life insurance is designed to provide financial support to your family, so they can pay off the mortgage if you were to pass away. It is important to remember that this is suited to a repayment mortgage, not an interest-only mortgage.
How to get mortgage protection insurance
Mortgage protection insurance can be incredibly helpful if you have a partner or dependents who would not be able to afford the mortgage without you. When you buy a house, your mortgage broker may offer you this type of cover. However, you are usually under no obligation to buy it from them. It may be in your interests to shop around and do some more research before taking out cover. You may be able to find a better deal when using a trusted Life Insurance broker.
You can take out mortgage protection life insurance from any insurance provider who provides the cover. It is important to note that this type of policy is designed specifically for paying off a repayment mortgage. If you wish to leave other financial support for your family for living costs or monetary gifts, you may be best off taking out an additional type of cover.
How does mortgage protection life insurance work?
Mortgage protection insurance works in line with your mortgage, and will decrease along with your repayment. As you continue repaying your mortgage, the amount of cover will reduce.
The amount of cover aligns with the duration of your mortgage. For example, if you have a 25-year mortgage, the insurance policy will usually last 25 years too. It is the most cost-effective way of protecting your mortgage.
It works by paying out a lump sum if you pass away, which should be the right amount to pay off your repayment mortgage. You can protect your mortgage further by making sure the policy is written in trust. This can be done at any time as long as your premiums are paid. Putting a policy in trust means that the payout will go to whoever you want it to go to. If you don’t, it could become part of your estate and may be hit with Inheritance Tax.