Mortgage Protection Insurance

A mortgage on a home is usually the largest commitment a person makes in their lifetime and it makes good sense to take out life cover to repay the loan in the event of the death of the mortgage payer to avoid hardship for the dependents left behind.

A typical mortgage protection insurance policy is a kind of decreasing assurance for a specific term. The sum assured decreases as mortgage repayments reduce the amount of the loan for which the life insurance was taken out. This is on the assumption that the mortgage is not on an interest only basis.

Interest only basis mortgages require the applicant to have sufficient life cover at all times and to build up an investment portfolio which may or may not be linked to an endowment or other life insurance policy to provide a lump sum sufficient to repay the mortgage on its agreed final repayment date.

Because the amount of the sum assured reduces each year the cost of a mortgage protection insurance policy is quite low in comparison to term and other policies. This type of policy has no surrender value or value at the end of the term.

Level Term assurance whereby the sum assured remains constant is a relatively cheap form of covering the risk of death in connection with a long-term mortgage liability