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This
kind of policy ensures that in the untimely
event of the death of a holder, any outstanding
debts with regard to the deal can be fully
repaid. This protects loved ones of the
deceased from the possible risk of losing
their home.
This
form of cover can apply to either an interest-only
or payment-only deal. All building societies
and other financial institutions that
issue these deals recommend, or in some
case insist, that a policy be taken out
as part of the agreement. It should be
noted however, that policies can often
be much cheaper when obtained through
specialist life assurance companies. You
are under no obligation to purchase these
deals from your provider.
These
deals can be obtained for both repayment-only
and interest-only mpolicies. Here we differentiate
the two:
•
In a repayment-only deal, the outstanding
debt steadily decreases as regular monthly
payments are met. Therefore, with each
passing year the premium payments that
are required decrease with the outstanding
debt. This type of policy is often referred
to as “Decreasing Term”. The
policy must finish on the date that the
final payment is due to be made. The duration
of time between the issue of the policy
and the final repayment date is called
the policy's “term”. Because
any outstanding debt is not affected by
inflation, there is no need to “proof”
a policy against inflation.
•
In an interest-only deal, the outstanding
value remains constant, as monthly payments
are only paid towards interest charges.
Therefore, the value of a relevant policy
needs to be constant to equal the value
of the outstanding loan. As the sum requiring
cover remains constant, the premiums similarly
remain at a fixed value. This type of
policy is sometimes called “Level
Term”; the cover expiry date should
be the same date on which the holder is
due to repay their debt.
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Mortgage
Protection Insurance Guide