Mortgage Protection Policy
Mortgage protection insurance is a life insurance policy designed to pay off your mortgage if you die during the term. A loan that one or more persons receive in order to buy a house or other residential property in which they will live. The loan is secured by a lien on the property; the borrowers repay it over a specified period of time. The interest on a residential mortgage is tax deductible under most circumstances.
It runs for the same length of time as your mortgage. So, if you take out a mortgage over 20 years, your mortgage protection insurance must also be in place for 20 years. If you die, your insurance company pays the policy benefit directly to your mortgage lender. Your lender uses the amount needed to pay off the mortgage and, if there is any left over, they will pass it to your estate. You can change insurer during the term of your mortgage if you find better value elsewhere.
This type of insurance does not cover your repayments if you cannot work due to redundancy, sickness or disability. For this type of cover, you will need to consider other types of insurance such as income protection, serious illness or payment protection.
What benefit do you get?
If you die, your insurance company pays the policy benefit directly to your mortgage lender. Your lender uses the amount needed to pay off the mortgage and if there is any left over they will pass it to your estate. If the policy is not enough to pay off the mortgage in full then part of the mortgage may still be owed.
If you have a mortgage in your own name only, you would generally look for a mortgage protection policy to cover your own life. If your mortgage is in joint names, your mortgage protection policy will also need to be in joint names. This means that your mortgage is paid off if either one of you dies before the end of the term.