If you have a mortgage, you may have considered what would happen if you can’t make payments. For peace of mind, many people put provisions in place so that if something should happen to them, the debt doesn't fall on the shoulders of their loved ones.
Two of the most popular ways of doing this are life insurance and mortgage protection insurance. However, they are two distinct products offering separate types of cover. So, what exactly is the difference? And which type of policy is better for me?
Life insurance, as it sounds, is a type of policy that pays out when you die. It’s designed to provide for loved ones and can be used to cover a range of situations. This could be funeral expenses, general living costs or debts.
While mortgages naturally fall into this, your standard life insurance isn’t always going to be the best option. Many people instead decide to opt for what is known as decreasing life insurance.
These policies are tied to a certain financial obligation, with premiums and subsequent payouts decreasing over time, in line with the amount of money you owe. This means that you never overpay, but can still rest assured that your debts are taken care of whatever happens to you.
Whereas life insurance covers you if you die, mortgage protection insurance is a form of income protection.
When you take out these policies, you will work out with an insurer what percentage of your salary is spent on your mortgage. Then, if you are unable to make payments the insurer steps up to make the payments.
Different policies will cover different situations. Generally, they are split into accident and sickness, unemployment or both.
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