A life insurance policy will payout a lump sum of money if the person covered dies before the policy ends.
The policy term will be the number of years you need the life cover for. So this could be until your mortgage ends, until your children are a certain age (eg 21) or until your retirement age. You choose the length of the policy when you apply
The amount of cover (death benefit) is again decided by you. This could be your outstanding mortgage and debts, enough money so your children can finish education or sufficient money for your partner to live on.
For term assurance policies, which are the most common, the premiums are generally fixed throughout the full term of the policy, so you always know how much it will cost.
Life Insurance for Mortgages
There are 2 types of policies which can help protect your mortgage:
MORTGAGE PROTECTION INSURANCE
Also known as Decreasing Term Assurance, this policy is designed to protect a repayment mortgage for a set number of years. The life cover amount decreases each year, broadly inline with your mortgage balance. The policy won’t have a cash value.
LEVEL TERM INSURANCE
This policy can be used to protect any mortgage, repayment or interest only. You apply for an amount of life cover, usually matching your mortgage amount, and this stays the same (level) for the whole policy term. The policy won’t have a cash value.
Do you need life insurance to get a mortgage?
When you’re looking to buy a home or remortgage, one of the most important decisions you need to make is whether or not to take out life insurance. The good news is that it’s not compulsory for you to take out a life insurance policy when getting a mortgage. It might be a very sensible thing to do, but it’s not a legal requirement.
Critical illness insurance
Critical illness insurance is an extra level of cover that can usually be added to a family life insurance plan or a mortgage protection plan. The extra cover pays out a tax free lump sum should you be diagnosed with a serious illness or condition.
