Mortgage protection is one of those things people don't give much thought to, but borrowers could save themselves thousands of pounds over the term of their mortgage if they shopped around.
Mortgage providers often sell the mortgage protection policy when the loan is taken out and many lenders are tied agents who can only recommend cover from one life company. So people tend to arrange the cover in the most convenient way possible - by filling out the mortgage protection part of the loan application form. Then they forget about it.
There are significant savings to be made for those who switch from the more expensive providers. In a recent survey of nine leading insurance companies, there was a difference of 96 per cent in the cost of monthly premiums.
A basic mortgage protection policy to cover a 35-year-old couple with a mortgage of £100,000 over 25 years would cost anything from £14.71 to £28.83. That's a difference of £4,236 over the full term. Caledonian Life were the cheapest found. So how does a mortgage protection policy work? It is an insurance policy that pays off what is left of your mortgage when you die. There are three basic types of mortgage protection and mortgage holders are free to purchase a policy from any life company. The cheapest option is a decreasing life cover only policy where the amount of life assurance is designed to decrease in line with the outstanding balance. The amount you pay for cover is guaranteed to remain the same for the term of the mortgage and if the person covered lives to the end of that time, or if the policy is surrendered, no benefit is paid. According to Mr John Geraghty of www.labrokers.ie, the cheapest form of protection for people buying a home together is a joint life policy. Joint life means that both persons are covered on the one policy but the benefit is only paid out on the first claim. After the decreasing term assurance policy, the next most popular way of protecting a mortgage is level term assurance. With this type of policy the amount of life cover remains the same throughout the term of the loan. The advantage of this type of cover is that there would be a surplus left over if either person was to die a few years into the mortgage. But financial advisers generally agree that personal requirements be kept separate from mortgage liabilities. The same 35 year old couple outlined above could expect to pay premiums ranging from £21.47 up to £31.88 a month. Again the premium is guaranteed and would not be reviewed by the insurance company. But if at the end of the mortgage the homeowner wished to continue that cover they would have to take out a new policy which would be more expensive or even unavailable.
The third mortgage protection option overcomes this difficulty and it's called convertible term assurance. It provides the same level of cover as level term assurance except for one detail.
A convertible term assurance policy offers a guarantee that the insurance company will offer you cover again, irrespective of your state of health at the time.
EVEN if you did have health problems the company would have to charge you the same rates as they would for a healthy person your age. Premiums for that 35 year old couple with a £100,000 mortgage over 25 years would range from £22.77 to £34.52 per month for convertible term assurance.
To get an idea of what rates are out there, you can get online quotes for mortgage protection from labrokers.com, 123.ie, and ferga.com.
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