Understanding the Importance of Mortgage Protection Life Insurance

Author: Claire Bowes
Source: articlecity.com

Your house is a big investment – probably one of the biggest you’re every likely to make. It is also the place that you and your loved ones call home; a shelter and haven from the outside world. That’s why it is so important to ensure that your home and family are protected in the event of your death. It’s not a topic that any of us like to dwell on, but the sad fact is that should you die and the family are no longer able to afford repayments on the house, they will lose the property and the roof from over their heads.

Having a good life insurance policy in place to protect your property in the event of your death is vital. When you die, your family will have enough to worry about without the added stress of how they are going to hold on to the family home. Your life insurance policy will ensure that this problem is eliminated, with the mortgage balance being paid in full upon your death.

The main types of mortgage life cover

The type of mortgage life insurance cover that you require will depend upon what type of mortgage you have, a repayment or an interest only mortgage. There are two main types of mortgage life insurance cover, which are:

Decreasing Term Insurance
Level Term Insurance

Decreasing term insurance

This type of mortgage life insurance is designed for those with a repayment mortgage. With a repayment mortgage, the balance of the loan decreases over the term of the mortgage. Therefore, the sum of cover with a decreasing term insurance policy will also go down in line with the mortgage balance. So, the amount for which your life is insured should match the balance outstanding on your mortgage, which means that if you die your policy will hold sufficient funds to pay off the remainder of the mortgage and alleviate any additional worry to your family.

With the decreasing term insurance, the cover is usually taken out over the term of the mortgage, and payment is made should you die during the term of the policy. Once the policy has expired, it becomes null and void, so you will receive nothing at the end of your policy if you are still living. There is no surrender value on this type of cover, but it does provide a cost effective means of protecting your home and family during the life of your mortgage.

Level term insurance

This type of mortgage life insurance cover is for those that have a repayment mortgage, where the principle balance remains the same throughout the term of the mortgage and the repayments made by the property owner cover the interest payments on the mortgage only.

The sum for which the insured is covered remains the same throughout the term of this policy, and this is because the principle balance on the mortgage also remains the same. Therefore the sum assured is a fixed amount, which is paid should the insured party die within the term of the policy. As with decreasing term insurance, there is no surrender value, and should the policy end before the insured dies no payout will be awarded and the policy becomes null and void.

Terminal illness benefit

Both of the above types of cover normally include terminal illness cover, which means that the mortgage is cleared should you be diagnosed with a terminal illness rather than waiting until you actually die. This helps to ensure that you do not have the additional worry of trying to meet repayments when a terminal illness takes away your ability to work and earn money, and at a time when the whole family has enough to worry about without having to stress about meeting mortgage repayments.

Critical illness cover

Critical illness cover is another type of insurance policy that can be added on to either of the above mortgage life insurance polices and provides an extra element of protection and peace of mind. This type of cover can also be taken out as a stand-alone policy, but usually proves much better value if simply added on to a main insurance policy.

With critical illness cover you will be eligible for a payout in the event that you are diagnosed with a critical illness. If you then go on to recover from the critical illness, the payout is yours to keep but the policy becomes null and void following your claim. The illnesses that are covered by this type of policy are defined by the insurer so you should ensure that you check the terms when taking out critical illness cover.

Adding critical illness cover to your policy will only increase your repayments by a small amount, but can provide valuable protection if you are diagnosed as critically ill and are therefore unable to work. With your mortgage repaid from the payout of this policy, you will not have the additional worry of trying to keep a roof over your head at a time when you should be concentrating on trying to make a recovery.

Summary

As indicated by the features of the two main types of mortgage life insurance cover, the policy you go for will depend largely upon the type of mortgage you have. Both types of cover offer value for money, with some really low cost deals available. Of course, the amount that you pay will ultimately depend upon the level of cover you require. For total peace of mind it is always advisable to go for a policy with critical illness cover incorporated into it.

Having some form of mortgage life cover is essential to protect your home and your family. After working hard to buy your own property, the prospect of it being repossessed in the event of your death can be worrying both for you and for your family. A mortgage life cover policy will ensure that this does not happen, and will give your family the security of knowing that whatever happens they will still have a roof over their heads.

Types of Term Life Insurance

Author: Dennis Jarvis
Source: isnare.com

Term life insurance comes in many different flavors. We feel that the more traditional Level term life is the best approach but it’s important to know what else is available and understand why level makes sense in comparison. Let’s take a look at the different types of term life on the market.

The most common type of term life is level term life. It’s pretty straight forward and this simplicity is it’s real value. This is also referred to as guaranteed renewal term. Essentially, you pay a fixed and guaranteed premium for a fixed period of time with a fixed benefit. For example, you may pay $40 monthly for 20 years for $500K of life insurance benefit in the event of your passing during that 20 year window. That’s it. Clean and simple. The term periods usually range from 5 years to 30 years in 5 year increments. This is the most common type of term life available on the market and when you run your term life insurance quote, the rates and options reflected are generally of level term. Let’s look at the other types of options which usually affect either the benefit amount or the term period.

Decreasing term life insurance takes this basic structure of level term and reduces the term life benefit amount as the policy continues forward in time. For example, the term benefit may be $500K during the first 5 years, then $250K during the next 5 years, and $100K during the last 5 years of a 15 year policy. This decreasing term would be less expensive than the $500K above since the benefit is decreasing but the added complexity doesn’t make sense. First, you’re assuming that in years 11-15, you don’t need as much protection as the first 10 years. That’s a big assumption and anyone will tell you that financial responsibilities are known to decrease with time. For example, if you have young children, college might be approaching towards the end of the term period. You’re making a bet that something would happen earlier than later and we personally feel that gambling and life insurance are bad partners. For the same amount, look at purchasing level term life for a less amount…say $300K.

What about the flip-side, Increasing term life insurance? This is just a different bet…let’s say red instead of black. The amount of benefit increases as the term period progresses. For example, it might be $100K the first 5 years, $250K the next 5 years, and $500 the final 5 years of a 15 year period. The problem is that life insurance at its core is a replacement of income over a long period of time. If you pass away during the first 5 years, you have $100K of protection to carry the family for more than 10 years! That’s a bad gamble as well. The whole point of life insurance is offset risk not bet on which risk might occur and which one might not.

There are some other variations of term life available on the market. Yearly renewable term life is an example. With this type of policy, the subscriber can renew annually for one year blocks of term life on a guaranteed issue basis. This is really just an attempt to dress term life in whole life clothing. Very similar to the wolf in sheep’s clothing, there’s a downside in the form of a much higher premium. This goes back to the whole theory of why term life insurance makes more sense than whole life as we have addressed in our whole versus term life or term life and investing articles. You will pay quite a bit more for this ability to renew annually and that money might be better put to other uses.

Term to age 65 or a fixed age (for example 70) is another hybrid between term and whole life. Essentially, it’s just a core term life benefit but there’s usually a cash value element. As discussed in the whole life versus term article, this cash value benefit can be only be won with extra premium that you pay. You’re paying a dollar to get change back. Not the best of deals unless you’re the life insurance company or selling agent.

Finally, another vehicle available is Re-entry term. With this type of life insurance policy, the life insurance rates are lower but you have to re-qualify based on health at periodic breaks such as every 5 or 10 years. This is just another gamble..gambling that you will be in good health when the re-qualification period comes up. For true peace of mind, level term life insurance still provides the best value and protection in our opinion. If whole life is over-insuring the risk, these hybrids of term life go the other way with potential risks built in by design.

Dennis Jarvis is a licensed insurance agent concentrating on term life insurance. Shop, compare, and instantly quote multiple carriers with professional guidance and resources.