Types of Mortgage Protection Insurance:
Reducing Term Cover
As you pay more off your mortgage, the amount that the policy covers reduces in line with the outstanding balance of your mortgage. Under normal circumstances the policy will end once the mortgage is paid off. It is the most common and the cheapest form of mortgage protection. Generally, your premium does not change, although the level of cover reduces.
Level Term Policy
The amount you are insured for and the premium you pay remains the same. This gives you the same amount of cover throughout the term of the mortgage. If you die before your mortgage is paid off, the insurance company will pay out the original insured amount. This will pay off the mortgage and any remaining balance will go to your estate.
If you wish to, you can add serious illness cover to your mortgage protection policy. This means your mortgage will be cleared not only if you die, but also if you are diagnosed with, and recover from, a serious illness that is covered by your policy. This will be more expensive than other types of cover.
Life Insurance Policy
You can use an existing life insurance policy if it is not already pledged or assigned to cover another loan or mortgage and it provides enough cover. Additionally, if there is a balance remaining after the mortgage is clear, this will go to your estate. To learn more about life insurance click here
What happens to my policy if my mortgage changes?
If you are changing your mortgage there are a number of things to consider, depending on whether you are topping up your mortgage or switching.
Topping up your mortgage
If you are topping up your mortgage, you will need to make sure that your policy meets the new value of your mortgage. You could get a new mortgage protection policy for the total amount of your new mortgage, or just for the top-up amount. Compare the costs and benefits of both options. It may be cheaper to keep your original mortgage protection policy and then buy a second policy for the top-up amount. Check the cost of cancelling the original policy and replacing it with a policy for the full amount of your new mortgage.
Switching Your Mortgage
When switching your mortgage, you will assign your mortgage protection to the new lender. The premium and level of cover will be the same as before, if the amount you borrow, and the term of your mortgage does not change. If either the amount you borrow or the terms of the mortgage change, you may need to increase your mortgage protection cover to ensure that you are still fully protected. You may be able to increase the cover on your existing policy. If this is not possible and you need to take out a new policy. It may cost more as you are now older, and you may not get cover at all if you are not in good health.