Ask someone who has life insurance why they do, and they will probably tell you it is to protect their family in the event of their death. This type of insurance, called family protection, is important, but another important component for any homeowner is mortgage protection insurance.
The purpose of mortgage protection insurance is not hard to deduce from the name â to pay off your mortgage in the event of your death. While a family protection plan will permit you to plan for your loved onesâ education, care and basic needs, imagine the trauma of losing someone dear to them and then realising there is no way they can remain in their own home.
With a mortgage protection policy, the proceeds are directed immediately upon the claim being agreed to paying your mortgage. This leaves your loved ones comfortably in their home, without the worry of paying a mortgage.
Having to take this into consideration may be an unwanted headache to one already burdened with the thought of paying for life insurance, but you can arrange your mortgage protection insurance in such a way to keep the cost to a minimum. You can either choose level term mortgage insurance, where you would choose a cover amount equal to the mortgage balance on your home at the start of the term. You would then continue to pay for that amount of cover over the life of the policy (with a similarly consistent premium.) Then, should you pass away, any remaining balance could be used by your dependants.
A cheaper alternative, if you are looking to reduce the cost of your mortgage insurance, would be to opt for decreasing term assurance. This means the amount of cover decreases along with your mortgage balance, but this decrease has been factored into your premium making the cost lower. In this way, you are assured of having enough cover, but not paying for any more than you need.