Level Term Mortgage Life Insurance

Level term mortgage life insurance is similar to a standard life insurance policy except that the lump-sum payout is destined to the pay-off your outstanding home loan should you pass away. It is also possible to add critical illness insurance to cover the risk of suffering serious illness or injury.

What is level mortgage term life insurance?

The purpose of level mortgage term insurance is to pay-out a tax-free lump-sum equal to the amount outstanding on your loan should you pass away within the policy term. Naturally, for the life cover and loan amounts to be the same at a potential claim stage they will need to be set equal at the start of the policy.

Level term insurance is very akin to standard life cover except that the policy is taken out for mortgage protection purposes. Level term life insurance is used to cover an interest only home loan. The amount of cover will remain the same throughout the life of the policy, just as the amount of mortgage debt will remain the same.

Level term mortgage life cover pays out a tax-free lump-sum either to the remaining partner (with a joint plan) or to the personal estate of the policyholder upon death (the funds would then be distributed to the mortgage lender). For single term insurance plans setting up a trust can help to speed up the process repaying the mortgage as the funds can be specifically set aside for a family member.

Another Option: Decreasing term insurance

The most common form of mortgage life cover is decreasing term insurance. It is the most popular form of cover because it is designed to cover principal/capital repayment home loans (where the loan is completely repaid at the end of the mortgage term).

With decreasing term insurance the level of cover declines over time so that the amount of cover tracks the amount of home loan debt outstanding, with the sum insured reaching zero at the end of the term of the policy (as the mortgage would have been repaid at this point).

Cover for you and your partner

If you have a joint home loan with your partner then you may want to take out a joint mortgage term life insurance policy. With joint life cover the policy will payout a tax-free lump sum upon the first death.

This means that if either yourself or your partner were to pass away the policy would pay out the full sum insured, thus leaving the remaining partner with the funds to pay-off the home loan debt in full. Please be aware that when a joint term life policy pays out the plan then terminates and the surviving life is left without cover (with is usually fine as the purpose of the cover is to protect the mortgage, which will then have been repaid).

It is important to compare the price difference between a joint policy and two separate policies. It is often the case that two separate policies which provides double the level of cover can be obtained for a small additional premium each month, using this method also means the surviving life would still have their own level of cover in tact should one partner pass away.

Include critical illness cover?

Mortgage critical illness cover can also be added to level term mortgage insurance plans. The two forms of loan protection would be combined under one policy and it would payout upon the first event of either death or suffering a critical illness. The types of critical illnesses covered include heart attack, stroke and cancer (reputable policies include about 35 conditions).

Next Step

If you are considering a level mortgage life insurance policy and want further information, a quick chat to discuss your requirements or a personal quote comparing the market leading insurers then let us know. Where we deal with this type of insurance day in, day out we are in a great position to help you find the right mortgage term life cover at the most competitive price.