Mortgage Protection vs Life Insurance
rd Jan 2019 |
Mortgage Protection vs Life Insurance can be a bit confusing, but when you’re ready to buy a new home, no matter how unenthusiastic by life insurance and mortgage protection insurance you may be, these are both key products offering important financial protection for you and your partner. Both life insurance and mortgage protection insurance provides the peace of mind that, should you die, your loved ones will receive the financial protection they need. But which product is best?
Mortgage Protection Insurance
Should tragedy strike and you were to die before the mortgage on your home is paid off, your partner could be burdened by the mortgage repayments, without the benefit of your income. In fact, mortgage protection insurance was designed to pay off the mortgage so your partner is not forced to sell the family home. In the majority of cases, mortgage protection insurance is bought at the same time you buy your home however, it can be reviewed and replaced at any stage during the term of the mortgage. Over the years the amount paid upon your death will decrease in line with the mortgage loan balance, meaning mortgage protection is cheaper than regular life insurance.
Unlike mortgage protection insurance which is a mortgage loan requirement, life insurance is needed to protect your dependents, initially to replace lost income and in old age for funeral expenses. The two most common types of policy are Whole of Life and Term Assurance. Whole of Life requires the payment of premiums throughout your life whereas Term Assurance, which does not cost as much, will last for a predetermined period of time, typically any term from 10 to 50 years.
The key difference between mortgage protection insurance and life insurance is that the former is specifically designed to pay off your mortgage in the event of your death. So with mortgage protection, the cover level reduces in line with your reducing loan balance. A life insurance policy differs from mortgage protection in that the cover level remains the same throughout the life of the policy. Most people choose to have separate life insurance and mortgage protection policies, but you can choose to assign a level cover life assurance policy to a mortgage if you so require, meaning the balance of cover would be payable to your dependents.