There are a few different types of mortgage protection insurance, these include:
Reducing Term Cover: as you pay more off your mortgage, the amount that the policy covers reduces in line with the outstanding balance of your mortgage. It is the most common and the cheapest form of mortgage protection.
Level Term policy: the amount insured and the premium you pay remains level. If you die before paying off your mortgage, the insurance company will pay out the original insured amount. This will pay off the mortgage and any remaining balance will go to your estate.
Serious Illness: if you wish to, you can add serious illness cover to your mortgage protection policy. This means your mortgage will be cleared not only if you die, but also if you are diagnosed with a serious illness that is covered by your policy.
Life Insurance policy: you can use an existing life insurance policy if it is not already pledged or assigned to cover another loan or mortgage, and it provides enough cover. Additionally, if there is a balance remaining after the mortgage is cleared, this will go to your estate.
If you change your mortgage, there are several things to consider, depending on whether you are topping up or extending your mortgage, switching, or paying the mortgage off early.
Topping up your mortgage
If you are topping up your mortgage, you need to make sure that your policy meets the new value of your mortgage. You could get a new mortgage protection policy for the total amount of your new mortgage, or just for the top-up amount.
Compare the costs and benefits of both options. It may be cheaper to keep your original mortgage protection policy and then buy a second policy for the top-up amount. Whether you are topping up your mortgage or extending the term and need to get a new policy, you may find that your premium is higher than the last time you took out cover. This is because you are older, and your age affects your premium.
Switching your mortgage
When switching your mortgage, you can assign your mortgage protection to the new lender. The premium and level of cover will be the same as before if the amount you borrow, and the term of your mortgage does not change.
If you have a policy through your lender’s group scheme, your lender will cancel the policy when you switch your mortgage. Before you switch your mortgage, make sure that you can get mortgage protection insurance as it will cost more as you are older. If you are not in good health, you may not get cover at all.
Paying off your mortgage early
If you pay off your mortgage early, then you generally have two options. You can cancel your mortgage protection cover and pay no more or keep the policy and continue paying until the original end date.
You might choose to keep the policy and continue to pay if you have a policy that covers more than just your mortgage, for example life insurance or level term cover. If you have a group policy with your lender, they may close off the policy once you clear your mortgage and give you no option to keep the policy open.
There are a few steps you should follow to make a claim:
- contact your insurer or broker: you must notify your insurer or broker that a policyholder is deceased
- complete a claim form: remember to complete the form as accurately as possible to avoid delays or refusal or your claim. If you are unsure of any information requested on the form, contact the insurer or broker
- get your paperwork in order: your insurer may ask for documentation such as the original policy document and certified copies of the death certificate
