Mortgage life insurance coverage protects your home and your family by providing a lump sum to repay your mortgage should you die while the policy is within force.
There are two types of home loan life cover - level term and lowering term insurance. With level term mortgage life insurance coverage, the value of your policy (the total amount you're insured for) remains the same provided the policy is in effect. With decreasing term mortgage life insurance coverage, on the other hand, the value of the policy decreases good reducing balance of your mortgage loan.
The price of this type of insurance depends on what size your mortgage is, the term of the actual mortgage, the type of insurance you purchase, and your physical health. Regardless of which kind you select, the policy terminates when the mortgage is paid entirely, or when a claim is made.
So Which sort is Best?
When considering what type of mortgage life insurance coverage you need, your main consideration will be the kind of mortgage you have and the cost. This is where decreasing term insurance is definitely an advantage as it's almost always less costly than level term insurance (assuming other factors are equal). If you possess a Repayment or Capital and Interest mortgage, the amount you can claim for on a decreasing term policy reduces consistent with your outstanding mortgage loan. As the risk towards the insurance company reduces over time this is actually reflected in lower premiums.
Whilst level term mortgage life insurance coverage is more expensive; there are a couple of big advantages making it more suitable in some circumstances. Level term insurance is of particular advantage within the later stages of your mortgage, because you're still insured for that original mortgage amount even when you've paid the majority of it off. That means if your family must claim, there is enough money to pay the actual mortgage, and there's some left over, as well.
Level term insurance is also more right for those with an interest-only mortgage. With a good interest-only mortgage, the amount you owe stays exactly the same for the full term of the mortgage while you only pay interest on the debt. Consequently, you need life cover to equal or exceed the debt provided it exists.
Joint or Separate Policies?
Should you and your spouse are joint owners from the mortgage, you'll both need to take out mortgage life insurance coverage policies. The question then becomes whether it's better to obtain a single joint policy or two separate types. Again, the cheapest option may prove attractive but you will find other considerations.
The big problem with a joint policy is it only pays out once. If one spouse dies or becomes terminally ill along with a claim is made, the policy terminates using the surviving spouse left uninsured. This may not be considered a problem if there are no children included, however for families, this can be a problem. Insurance is always less expensive when you are young, and the surviving spouse may find that getting a new life insurance coverage is very expensive. If the surviving policyholder is constantly on the have financial dependents such as children, it will always be better to get two separate policies, to ensure the entire family remains protected even in the event that one spouse dies.
As always, if you have any doubts about which type of cover is most effective to your needs and mortgage, consult the regulated financial adviser for specific guidance.
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