Level term cover best investment

TAKING out a mortgage protection policy from your lender may not be as simple, or as risk free as it would seem.

According to Tony Gilhawley, an independent actuary and director of Technical Guidance Ltd., a company that specialises in training and competence and product market research for the insurance industry, by buying your mortgage protection policy as part of the group "scheme run by the lender "your life cover will be legally owned by the lender, not by you.

This might not seem important now, but if you pay off your mortgage in the future, your cover will be cancelled. You can't continue the cover." The problem arises, he says, if you try to get another mortgage from a different lender and your health is not as good as it may have been.

"You could find yourself unable to move from the first lender if your mortgage protection cover is owned by that lender. If you have arranged your own policy, which you are entitled to do under the Consumer Credit Act, you can take your policy with you to a new lender."

Commenting on the increasing popularity of mortgage protection policies in which the value of the cover falls in line with the outstanding capital you owe, Mr Gilhawley suggests that the alternative level term insurance might be a better investment.

"Traditional mortgage protection cover will pay off the outstanding balance on death but level cover would pay your mortgage off and return any balance to your dependents. You pay more for level cover, but the extra outlay is not large and you are building in some additi0onal cover for your dependents."

He illustrates this with the monthly cost of a £50,000 mortgage over 20 years based on a couple aged 35, both non smokers. The decreasing cover costs £12.90 a month while the level cover is £15.50, just £2.60 a month extra. For just £16.90 a month you can purchase an option to extend your cover past the mortgage term. "Group protection cover does the basic job at the cheapest possible cost," he says. "But for a few pounds more per month, if you can afford it, you can buy better comprehensive mortgage protection cover.