Life Cover - A Guarantee that your Mortgage Gets Paid Off

For most of us, a mortgage is the essential source of funds that enables us to buy a home. We commit ourselves to making monthly repayments over many years. But what if the mortgage holder dies before the loan has been fully repaid? Would those left behind, family and loved ones, have sufficient resources to pay back the lender? If not, would the property have to be sold to obtain the necessary funds? Even if the deceased's nearest and dearest were able to pay off the loan, what impact would that have on their finances?

There is an obvious need to ensure that funds are available, on death, to pay off the mortgage. This is where a decreasing life cover policy can play an important role. This type of policy pays out a lump sum, on death or diagnosis of a terminal illness, and the amount payable decreases over the term of the policy. This is ideal for those with a repayment mortgage, where the amount of loan repayable also reduces throughout the mortgage term. Decreasing life cover is also less expensive than level life cover (where the amount payable on death stays the same throughout the term of the policy). Cover can be taken out by one person or by two people jointly. For joint policies, the life cover will be payable on first death.

The lump sum payable, under a decreasing life cover policy, will often reduce at a fixed rate set by the life cover provider. This amount may be more or less than the actual mortgage debt on death. Some providers offer to match the outstanding loan amount subject if specific conditions are met. These conditions are, typically, that the loan has stayed as a repayment mortgage, that all loan repayments have been made and that the mortgage value or term have not been increased. Many policies also offer a free period of cover, subject to certain conditions, between the exchange of contracts and completion stages of a mortgage.

Another common feature is to allow policy owners to increase their amount or term of cover when they either move to a new home or make home improvements. The increased cover, subject to certain conditions and limits, requires no further evidence of health, occupation or pastimes. The overall cost of the cover will also increase.

So, for anyone with a mortgage, it makes extremely good sense to ensure that appropriate life cover is in place. This will ease the financial burden faced by their loved ones, should the worst happen. The cost and features of decreasing life cover make it the obvious choice for mortgage protection.