Life Insurance and Mortgage Life Insurance
Life insurance and mortgage life insurance serve a common purpose: financial protection for your loved ones by offering a cash sum in the event of your passing within the policy term. Both can be utilised to help settle outstanding mortgages, providing your family with peace of mind in challenging times.
Life Insurance vs. Mortgage Life Insurance: Purpose and Coverage
The primary contrast between life insurance and mortgage life insurance lies in their intended protection objectives. Some individuals seek comprehensive coverage that safeguards their family’s financial well-being, encompassing various expenses such as education, household bills, and more, in the unfortunate event of their death. Others may specifically require coverage to alleviate mortgage burdens for their family in case of the worst-case scenario.
Given the uniqueness of each individual’s circumstances, it is vital to explore the available options. Below, we outline the policies we offer, along with their specific purposes:
Life Insurance (also known as level cover life insurance): This policy offers a fixed cash sum payout upon your death within the policy duration. It can provide financial protection for your family’s lifestyle, everyday living expenses or assist in covering an interest-only mortgage. The premiums and coverage amount remain constant throughout the policy term unless you decide to make changes.
Decreasing Life Insurance (sometimes referred to as ‘decreasing mortgage life insurance’): Designed to protect a repayment mortgage, this policy sees the coverage amount gradually decrease in line with the reduction of the outstanding mortgage balance.
Remember, life insurance is not a savings or investment product and does not accumulate cash value unless a valid claim is made. It’s important to have a broad understanding of life Insurance and mortgage life insurance.
Mortgage Payout Mechanism
One of the fundamental differences between life insurance and mortgage life insurance pertains to how the coverage amount functions during the policy term.
With life insurance, the coverage amount remains fixed regardless of when a valid claim is made within the policy duration.
On the other hand, mortgage life insurance features a payout that diminishes over time to match the declining balance of a repayment mortgage. While a valid claim can lead to a payout, the sum is likely lower than a level-term policy with the same original coverage amount.
Exploring the Advantages and Disadvantages of Mortgage Life Insurance
As part of your greater understanding of life insurance and mortgage life insurance, mortgage life insurance may only be suitable for some. Life insurance isn’t exclusively for homeowners, so if you rent or have an interest-only mortgage, you may want to consider a standard life insurance policy. Additionally, individuals with other financial responsibilities, such as a child’s education or hobbies, may prefer a life insurance policy that offers coverage for these additional costs and provides the assurance of knowing the exact payout amount. 
However, there are distinct benefits to obtaining mortgage life insurance:
- Tailored to your needs: This type of policy can be customised to align with your specific requirements. You have the flexibility to choose the coverage amount that matches your mortgage balance and the duration of coverage. It can be taken out in joint or single names, depending on your circumstances.
- Cost-effective: Opting for mortgage life insurance helps avoid the risk of overpaying for life insurance. Once your mortgage is fully repaid, the need for extensive life cover diminishes. Mortgage protection life insurance offers a cost-effective solution by ensuring what you need.
- Affordability: Decreasing mortgage protection insurance often costs less than other life insurance types. This is due to the decreasing coverage amount over time, contrasting with the fixed coverage of traditional life insurance. However, it’s essential to consider that various factors, including age, overall health, smoker status, and alcohol consumption, influence life insurance premiums and policy availability.
Is Mortgage Life Insurance Cheaper Than Level Term Life Insurance?
In a word, yes, mortgage life insurance typically comes with a lower price tag than level-term life insurance. The declining coverage amount in mortgage life insurance leads to a lower payout compared to fixed coverage in a level-term policy. Nonetheless, it’s important to remember that individual circumstances and factors impact life insurance premiums and the availability of coverage. The lesson here is that there are things you may not have known until today about life insurance and mortgage life insurance
Choosing the Right Life Insurance Policy
When determining the most suitable life insurance policy, it’s beneficial to consider whom and what you aim to protect. If you have dependents, such as children, your financial obligations may extend beyond just the mortgage. In such cases, a level cover life insurance policy could provide the comprehensive coverage you require.
If you still need to understand the profound difference between Life Insurance and Mortgage Life Insurance, don’t hesitate to get in touch with us here at Connect Mortgages.
