Mortgage Protection

Term assurance is the cheapest form of life cover and is normally used for the benefit of the life assureds’ family or business, but it does have limitations. As it has a fixed term, there is no flexibility and the policyholder will be unable to increase cover or extend the term. Should their deteriorate during the term of the policy, the policyholder may be unable to obtain further life cover at the end of the term, if it was wanted.

Mortgage Protection policies, otherwise known as Decreasing Term Assurance (DTA), provide cover to match the outstanding balance of a mortgage/loan, and will pay a lump sum that can be used to pay off the remaining balance of that mortgage/loan in the event of death and/or diagnosis of a terminal illness.

If critical illness cover is included in the plan, a lump sum would be payable upon diagnosis of a critical illness. However, different policies have different levels of comprehensiveness; some may only cover a limited number of critical illnesses – known as core conditions – where others cover more, but normally at an increase to the monthly premium.

Some products allow you to select the interest rate to match the rate of interest on the mortgage/loan being covered, whilst others have pre-set rates. It is therefore important to review the cover if the rate of interest on the mortgage/loan in question changes.

Premiums can be guaranteed throughout the term or reviewable at certain intervals, but should the policyholder survive the policy term, there will be no benefit. This type of policy only provides cover in the event of death and/or diagnosis of a terminal illness (and possibly critical illness, if added on) so there is no surrender value nor investment element. If the policyholder stops paying the premiums at any time, cover will cease; normally after three missed payments.

Premiums are based on personal circumstances but the main areas for consideration by an insurer are age and state of health. The older a person is, the higher the premium will be. Similarly, if someone has you have or had a serious ailment the insurer may seek to charge you more or in some cases be unwilling to cover you at all. Higher levels of cover and longer policy terms all increase cost as will the fact that an individual smokes.

Applicants would have to be aged 18 or over to take out such a policy, and all proceeds upon a payout would be free of income tax and capital gains tax.