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Life Cover
Life cover is an insurance intended to help ease the financial burden and protect our loved ones in the even of death. There are various different types of life cover available such as decreasing term life assurance and level term life assurance to name just two. In this article we will be covering the two main life cover policies associated with mortgage protection - namely decreasing term life assurance and level term life assurance.
Decreasing term life assurance
Decreasing term life assurance will protect a borrowers mortgage capital on a repaying or capital and interest mortgage. The amount owed on a repayment mortgage reduces over the years as each monthly payment made to the mortgage lender will pay both interest and capital owed and a decreasing term life policy will reduce the sum insured in line with the amount owed. So the amount covered in year one will be less than the amount covered in year 10 to keep in line with the amount owed to the lender. Decreasing term life policies are paid monthly over the term of the cover, usually the same as the mortgage term - the monthly premiums for the insurance are averaged out over the term to keep costs down for the borrower.
If the policy is ever claimed on the insurance policy will repay the mortgage in full meaning any loved ones left behind will not have the burden of funding the mortgage payments and can gain some comfort in the knowledge that their home is paid in full however it is important to note that it is not an investment policy and should the insurance never be claimed the will be no cash in or surrender value. Decreasing term assurance is typically the cheapest form of life cover for mortgage payers wanting to protect their home for loved ones - for this reason it is also one of the most popular life policies available for mortgage payers.
Level term life assurance
Level term live assurance is a policy what pays out fixed lump sum over a set period of years and can be used to protect mortgage capital being repaid on an interest only basis.
Mortgage capital owed being repaid on an interest only basis will not reduce over time as the monthly payments on the mortgage by the borrower to the lender pays only the interest which means at the end of the mortgage term the total amount owed becomes due. Level term assurance, as with decreasing term assurance will payout if death occurs during a set term - if its used to protect a mortgage balance this will typically be the amount owed over the term of the mortgage. It is important to note that Level term assurance is not an investment policy and will have no surrender value and the only time it will payout is if the person insured dies whilst the policy is in place - most people hope level term assurance and decreasing term assurance will never pay out but it is a sad statistic that many people will not see the end of their mortgage term.
Obviously the type of life cover you require for mortgage protection will be dependent on the type of mortgage you have in place but the majority of mortgage payers will have their mortgage set up on a a repayment basis which is why decreasing term assurance is far more popular than level term assurance for mortgage payers.
