There are many types of life insurance available most of
which can be effectively used to cover a mortgage but only one type
was ever specifically designed to cover mortgages and
that goes by the name of Mortgage Protection insurance
or decreasing term assurance.
It should be noted that to cover a mortgage against
death any policy will do as long as it pays out enough
money to settle the outstanding debt at death.
The reason for mortgage protection insurance
is it keeps the costs down by imitating the profile of a
repayment mortgage. As the name suggests a repayment
mortgage is being repaid. This means that as time goes
by you owe less and less. Mortgage protection insurance
exploits this fact and ensures that you have the same
amount of cover as you have debt at any one time. By
doing this you ensure you do not have unnecessary life
cover over and above any outstanding debt. Due to this
fact the overall cost of cover can be reduced versus the
costs of comparable level term assurance.
In addition as the level of cover is reducing on a
regular basis as a repayment mortgage would reduce, it is for this reason that it is
wholly unsuitable for anything other than a repayment
mortgage, as to use it in conjunction with an interest
only mortgage for example would leave you grossly under
insured in years to come.
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