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Is mortgage life insurance necessary?

Apr 6, 2008
You might be thinking, "I have life insurance already. So why on earth do I need to consider mortgage life insurance?"

Well, for starters, you will be providing for your family a way of paying off the remainder of your mortgage should you die before you have paid the whole amount yourself. If your mortgage of choice is a repayment mortgage, then the amount of coverage you need to allow for will lessen each year as the debt decreases. This means that you are saving each year as you only pay for the amount of coverage necessary for the remaining balance.

Mortgage life insurance can be purchased on a joint or a single-life basis. You will, at the time of inception, choose the exact number of years the policy will need to be active for (term) as well as the complete level of mortgage life insurance cover that your situation requires at the beginning of your policy. You may also want to add a critical illness benefit to almost any mortgage life insurance policy for a slightly increased premium.

Critical illness cover essentially provides a safety net should you die or become critically ill before your mortgage is paid off. The policy provider will pay the remainder of your mortgage should you die or become ill with any number of pre specified diseases which render you unable to work.

If the value of the policy is paid out as a benefit, the mortgage policy is then terminated. If, however, you manage to live until your whole mortgage is paid off and have not had to cash in your mortgage life insurance policy, the policy ends without anything being paid out.

It should be remembered that at the end of the policy term the actual policy has no monetary value. That said, if the policy obtained was set up in a way as to run to the end of the mortgage term then it would not matter as there would be no mortgage debt to pay off. If you are considering changing your mortgage life policy, and this may sound like obvious advice, before you cancel your original policy you should ensure that your new policy has been fully approved. If not, you could find yourself in the position of being uninsured and uninsurable.

Your policy can run anywhere from one to forty years. You may choose to run the policy for the same length of time as the mortgage itself. It is really down to your own financial restrictions. You can have full coverage for the whole term or for just a part of it, it is entirely up to your own personal circumstances.

It should also be taken into account that many of the companies which deal with mortgage life insurance policies will also be more than willing to increase the amount of coverage depending on your individual needs and situation. You might need to take out a loan for the like of, say, home improvements. The amount of money borrowed will need to be covered. Or say when you originally purchased your policy you were single but are now married. In certain situations it will be in your own best interests to get your policy re-evaluated.

Once you have an idea of what you require it is simply a matter of searching the web. Here you will find many sites offering sound advice on the best policy to suit your needs.

So to summarise you should always ensure that you have a life insurance policy to cover your mortgage. You should seriously asses whether or not you could benefit from critical illness cover, and you should make sure that any cover is at least for the amount of your mortgage and for the same if not a longer term than the mortgage loan itself. All these things can be clearly explained by a competent life insurance broker.
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