Choosing the best mortgage protection policy
Mortgage protection insurance is a policy that is required by mortgage lenders to ensure that the mortgage is cleared in full, if the policy holder passes away. It is the cheapest form of life insurance, primarily because the balance on your mortgage reduces over time and the policy is designed to clear the outstanding mortgage.
However the best policy is not necessarily the cheapest policy and it is importnat to consider yoru options.
Our Life insurance manager has recently come face to face with this question and it is interesting to see the choice she made.
" When I sat down with my husband we had a good chat about all the options. In an ideal world we would have taken out some serious illness cover also but we feft we would review this next year. So we had to decide whether we go for straight mortgage protection insurance or something more flexible. We decided on an index linked convertible term insurance policy for a term slightly longer than the mortgage and we rounded the cover up also. We felt that we might as well do it now as if anything was to happen either of us along the way, we would not only cover the balance on the mortgage, but also have extra cover in the form of the difference between the mortgage balance and the term cover and we were also building in cover to protect against inflation.
A term insurance policy has a number of advantages over a basic mortgage protection policy.
- The amount insured does not decrease.
- The amount insured can be increased to cover inflation.
- If a claim is made, there will be a residue payable to the estate, being the difference between the cover level and the outstading balance on the mortgage.
- The term is not restricted to your mortgage term.
- You many extend the policy term at a later date by taking out a conversion option.
- You can use this policy as security if you move home.
Very often paying extra for this flexibility can make sound financial sense and provide peace of mind. Check how much your family protection will cost using our mortgage protection and life insurance calculators.