Life Insurance vs Mortgage Life Insurance
The primary distinction between life insurance and mortgage life insurance is that they were created with various levels of protection in mind. Some people desire a policy that, in the event of their passing during the policy’s term, would provide for their family financially in a variety of ways, such as covering household expenses and educational expenditures. Others could require a coverage that would merely assist their family in protecting their mortgage should the worst happen.
Because every person’s situation is unique, you should give all of your options careful thought. The policies we provide and the things they are intended to help you protect are described below.
Life insurance, sometimes known as level term life insurance, may pay you a cash sum if you pass away while the policy is in effect. It could be utilised to assist pay for an interest-only mortgage or to help maintain your family’s standard of living. Until you make changes to your policy, the rates and level of coverage you select remain the same.
Decreasing term life insurance, often known as “decreasing mortgage life insurance,” is created to protect a repayment mortgage. As a result, the amount of coverage diminishes roughly in accordance with the value of the repayment mortgage.
Please keep in mind that unless a legitimate claim is filed, life insurance has no monetary value and is not a savings or investment product.
In the next portions of this paper, we will refer to “mortgage life insurance” as “decreasing term life insurance” and “life insurance” as “level term life insurance.”
How does life insurance for a mortgage payout?
The way the amount of coverage operates over the course of the policy is a key distinction between life insurance and mortgage life insurance.
When you have life insurance, your level of protection is guaranteed to remain the same throughout the course of any legitimate claims that may be made.
In contrast, the potential payout from mortgage life insurance to cover a repayment mortgage reduces over time. If the original cover amount was the same, a legitimate claim from a mortgage protection policy could result in a payout, but it would probably be less than it would be for a level term policy.
Pros & Cons of mortgage life insurance
Not everyone should purchase mortgage life insurance. Whether you rent or have an interest-only mortgage, you might want to think about getting a regular life insurance coverage since it’s not just for homeowners. Also, some people who have additional expenses (such paying for a child’s school or their hobbies) would prefer a life insurance policy so they can cover these expenses and have the assurance of knowing exactly how much a payout would produce.
Yet, buying life insurance for mortgage protection has some advantages:
- It works for you. The policy can be tailored to your needs. You choose the amount of cover you need to match your mortgage amount and you choose the number of years you need the cover for. It can be taken in joint or single names.
- It’s cost-effective. With mortgage life insurance, you lessen your chances of over-paying for life insurance. Once your mortgage is paid off, you may feel you have less of a need for life cover, so insurance for a mortgage can protect what you actually need.
- It’s cheaper. Decreasing mortgage protection is often cheaper than other types of life insurance, as we’ll explore next.
Is mortgage life insurance cheaper than level term life insurance?
Indeed, mortgage life insurance is frequently less expensive than life insurance. This is so that the potential payout is less than fixed life insurance because the quantity of cover reduces with time. Yet, a number of factors, such as your age, general health, smoking status, and alcohol usage, impact life insurance premiums and whether you are eligible for a coverage at all.
Which life insurance policy is right for me?
Consider who and what you are trying to protect when considering what kind of life insurance policy you might need. A level cover life insurance policy may provide you with the breadth of coverage you need if, for example, you have children and need to safeguard more than simply your mortgage. Yet, if you want to keep monthly costs low and you have a repayment mortgage, a “decreasing” life insurance policy for mortgage protection may be an inexpensive and appealing solution. Every household has different demands, but as a general guideline, if your partner, children, or other family members depend on your income, you might want to think about getting life insurance of some sort.
Are there other life insurance options?
Yes. While we’ve been comparing the differences between life insurance and mortgage life insurance, there are other policies that can protect you and your loved ones:
- ‘Whole of life’ insurance – unlike a life insurance policy term, this provides indefinite cover for the rest of the insured person’s life and is therefore a more expensive option.
- Increasing term life insurance – a lesser known type of life insurance, this type of policy is designed to protect against inflation and the amount of cover and premiums can increase each year. So you may pay higher premiums but the potential payout rises to counteract rising inflation and the cost of living.
You should speak to our experts here at Mummy Insurance who will help you determine the best policy for your needs.
Regardless of what type of policy you chose, taking out a life insurance policy can help provide financial security to your loved ones should the worst happen.
Briefly stated, if you are found to have one of the serious illnesses it covers, critical illness cover pays out a flat sum. Most critical illness insurance policies will normally include coverage for fatal ailments including cancer, heart attacks, and stroke.
The amount of coverage you want, and the length of the critical illness policy are up to you since many critical illness policies are linked to life insurance, though you can also purchase critical illness standalone coverage.
The last thing you want in a catastrophic medical emergency is to be concerned about money. However, getting sick can be costly. You might have to pay for specific medical costs or lifestyle adjustments, and if you can’t work, it might have a negative impact on your family’s finances. Critical illness cover comes into play here and provides you support when you need it most.
Income protection insurance should be considered if you work a job where you run the danger of losing a portion of their income for reasons beyond your control. This will provide you peace of mind about your income.
Loss of income might be concerning, particularly if you have several ongoing expenses. Income protection insurance is available to support you financially until your problem is rectified if you experience a loss of income because of illness or injury. It can help you with bills, rent or mortgage payments, and other expenses.
Mummy Insurance can offer prices from the UK’s top insurers for life insurance, critical illness cover, income protection & more. Our team of experts can support and guide you through the process with our advised service to help get you the right policy that suits your needs the most.
