Mortgage Life Insurance Guide

Protecting the biggest purchase of your life...

Mortgage life insurance covers the amount your mortgage loan. If you die during the term of the policy, a lump sum is payable which is used to pay off the remaining balance of your mortgage.

TYPES OF MORTGAGE LIFE INSURANCE

Your mortgage  life insurance will need to offer level cover or reducing cover depending on which type of mortgage you have.

• Mortgage Life Insurance (level cover) - The amount of cover remains at the same level over the full term of the policy. A policy with level cover is commonly used to protect an interest only mortgage where your payment  to the lender only pays the interest on the oustanding loan. 
• Mortgage Life Insurance (reducing cover) - The amount of cover reduces over the term of the policy to match the reducing balance of a repayment  mortgage loan, so you are only paying for the cover you need.

BUYING TIPS

1. Make sure your policy lasts for the same term of your mortgage.
2. If your policy is to protect a Repayment mortgage, the cheapest type of cover is reducing protection. Because the amount of cover reduces over time, the monthly premiums are considerably cheaper than level term protection.
3. Check the maximum mortgage interest rate covered.  Most policies will only guarantee to repay your mortgage up to a maximum interest rate, usually between 10% and 15%. The higher the rate covered the more protection you would receive against times of high interest rates.
4. Because you are using the policy to cover a loan or mortgage, there is no need to inflation link your policy. For all other types of policy it is ideal to index them because, if you need to claim, you need the cover to have kept its real value over time.
5. Check that the premiums are `Guaranteed´.  This means the premiums are guaranteed to remain the same throughout the term of your policy.  This is opposed to `Reviewable´ premiums which, as the name suggests, are reviewed usually every 5 years and can increase dramatically.
6. Can waiver of premium benefit be included in your plan.  This is a valuable extra which, if you become too ill to work for a number of months, will ensure your cover continues without you having to pay the premiums.

THE  COST
The cost will depend on a number of factors, the most important being your age, sex, lifestyle, if you smoke and your general health. Women pay less than men because, on average, they live longer.

POLICY OPTIONS
You can include one or more options to improve the level of protection provided by your policy. Adding any of these options will increase the premiums.

• Waiver of  Premium - if you are unable to work due to illness or injury, your insurance company will pay your premiums and keep your cover in force.
• Critical Illness Cover - the insurance benefit will be paid if you are diagnosed as having a critical illness covered under the policy.