When people buy a family home, they often start to think about getting a life insurance policy to go with it. A mortgage is often the most important financial decision a person makes, and it is always a good idea to find a way to protect your mortgage so that if you die, your family won't lose money because they won't have your income. A carefully chosen life insurance policy is the best way to protect yourself in this way.
Level-Term Coverage and Decreasing-Term Coverage
Getting term life insurance is the most common way to protect your mortgage. When choosing life insurance to protect a mortgage, you have to choose between two types: insurance-level term insurance and decreasing term insurance.
If you buy level term life insurance, the amount you are covered for stays the same for as long as the policy is in effect. On the other hand, with a decreasing term policy, the size of the possible pay-out goes down as the mortgage is paid off. No matter which type you choose, the policy will end automatically if you make a claim or when the mortgage is paid off.
How much life insurance for a mortgage costs
How much mortgage life insurance costs depends on a number of things. The terms and conditions of your mortgage, such as how much you borrow and how long it will take you to pay it off, are the most important factors that determine how much the policy will cost. As with all types of life insurance, the cost depends on how you live, how old you are, and how healthy you are. Last, the cost is also affected by whether you choose level term insurance or decreasing term insurance.
Most of the time, level term mortgage insurance costs more than decreasing term mortgage insurance. Because the size of the pay-out goes down over time with decreasing term insurance, the overall cost of premiums goes down to reflect this. Since the other parts of these two types of policies are more or less the same—in both cases, the mortgage is fully paid if a claim is made—the type of insurance you get will usually depend on how much you can afford.
Level term insurance has one benefit that decreasing term insurance doesn't have. Since the size of the payout stays the same over the life of the policy, your family's financial security will improve if there is money left over after the mortgage is paid. Because of this, you should try to get level term insurance if you can. If you have an interest-only mortgage, your payments will go up over time, and your equity will take a long time to build up. In this case, a level term mortgage can give you more financial security.
Other Things to Think About
You also need to decide whether you and your partner will have a single policy or two separate ones, and whether or not you will buy extra coverage for critical or terminal illness. Some policies automatically cover this, but others don't. That's why you should always read the fine print and make sure you know what you're covered for. In the same way, a joint policy isn't always the best choice, even for a married couple, so it's just as important to look into all your options before deciding between a joint policy and two separate ones.
