Mortgage life insurance

by · July 16, 2012

Mortgage life insurance is purchased in order to guarantee that any outstand­ing mortgage debt you may have at the time of your death will be paid off in full.

Types of Mortgage Life Insurance

  • Creditor mortgage insurance offered by lending institutions when a mortgage loan is approved.
  • Personal mortgage insurance plan

Creditor mortgage insurance benefits the lender

  • Lender is the sole beneficiary
  • Death benefit decreases over time
  • Premium stays the same
  • With every payment, you get less value for your money
  • If you switch lenders, you’ll need new mortgage insurance, and may pay more because you’re older or may not qualify
  • Insurance can be cancelled by the lender without warning

Personal mortgage insurance plan  

  • You decide who the beneficiary will be
  • Your beneficiary spends the tax-free death benefit
  • Death benefit stays the same
  • You can transfer your mortgage
  • No need to reapply
  • No risk of losing your insurance
  • You are in control
  • You can cancel or alter your coverage when you choose

A personal life insurance policy doesn’t insure your mortgage. It insures you. After all, you’re the one making the mortgage payments. A personal life insurance policy provides protection that works for your needs, now and in the future, providing flexibility to change along with you.

Mortgage Protection vs Life Insurance

There are different types of mortgage protection and life insurance (or assurance) available. Some provide a payment only in the event of your death, whereas those with critical illness cover included will provide the lump sum if you are diagnosed with a qualifying medical condition.

Level term life insurance

Provides a fixed lump sum payment should you die within a specified period of time.

How it works:

  • You select the amount of cover you would like and the period that you want the cover to run for.
  • If you die during the term of the policy, your insurer will pay the fixed amount you are covered for.
  • If you set up a joint policy (a single policy to cover two people), the amount of cover is paid  out upon the first person’s death.
  • The policy expires when a claim has been paid.
  • The policy has no cash-in value at any time.

Level term life insurance with critical illness

Provides a fixed lump sum payment should you die or suffer a critical illness within a specified period of time.

How it works:

  • You select the amount of cover you would like and the period that you want the cover to run for.
  • If you die or are diagnosed with a critical illness during the term of the policy, your insurer will pay the fixed amount you are covered for.
  • The type of illnesses typically covered includes heart attack, stroke, cancer and multiple sclerosis, but the precise cover and exclusions may vary by insurer and the level of cover.
  • The full list of specific qualifying illnesses is detailed by insurers in their key facts document, which is available upon request.
  • If you set up a joint policy (a single policy to cover two people), the amount of cover is paid out upon the first claim.
  • The policy expires when a claim has been paid.
  • The policy has no cash-in value at any time.

Mortgage protection cover / decreasing term insurance

Provides a decreasing lump sum payment to cover your outstanding mortgage amount should you die within a specified period of time.

How it works:

  • You select the amount of cover you would like and the period that you want the cover to run for.
  • The amount of cover reduces each month during the policy term and is calculated to equal the capital outstanding under a normal repayment mortgage.
  • If you die during the term of the policy, your insurer will pay the calculated amount of cover at that time.
  • If you set up a joint policy (a single policy to cover two people), the amount of cover is paid out upon the first person’s death.
  • The policy expires when a claim has been paid.
  • The policy has no cash-in value at any time.

Mortgage protection cover / decreasing term insurance with critical illness

Provides a decreasing lump sum payment to cover your outstanding mortgage amount should you die or suffer a critical illness within a specified period of time.

How it works:

  • You select the amount of cover you would like and the period that you want the cover to run for.
  • The amount of cover reduces each month during the policy term and is calculated to equal the capital outstanding under a normal repayment mortgage.
  • If you die or are diagnosed with a critical illness during the term of the policy, your insurer will pay the calculated amount of cover at that time.
  • The type of illnesses typically covered includes heart attack, stroke, cancer and multiple sclerosis, but the precise cover and exclusions may vary by insurer and the level of cover.
  • The full list of specific qualifying illnesses is detailed by insurers in their key facts document, which is available upon request.
  • If you set up a joint policy (a single policy to cover two people), the amount of cover is paid out on the first claim.
  • The policy expires when a claim has been paid.
  • The policy has no cash-in value at any time.