Mortgage insurance and life insurance - what’s the difference?

Taking out life insurance can seem like a complex task - usually by the time we realise we need to protect our families we simply want to get a policy in place as soon as we can. But, there are a lot of options in the life insurance sector which can be confusing, although they all do the same kind of thing (i.e. make a payment if you die). 

You don’t want to make the wrong decision here - this could leave your family under-protected or it could see you paying out more than you need to. So, let’s take a look at mortgage insurance and life insurance - what’s the difference?

Mortgage Insurance 

You don’t need to be a rocket scientist to work out that mortgage insurance cover is a kind of insurance policy that will cover your mortgage!  Generally, this kind of policy works best if you have a repayment type of mortgage. It can be geared to match the actual money that is still owed on your mortgage when you die. This is often referred to as decreasing term insurance.

So, for example, you may start a mortgage insurance policy when you take out your mortgage. Every year that you work a repayment mortgage you pay off a little bit of the interest and capital that you owe so your mortgage debt goes down (even though it can seem to go down VERY slowly!). Decreasing term insurance here is simply calculated to go down at the same pace as your mortgage debt. 

The advantage here? If you buy right then mortgage insurance may be cheaper than life insurance as the longer you survive, the less the insurer will have to pay. Some policies may be linked to your mortgage provider and as such any payment made on death will go straight to them. Others simply pay the money owed to your next of kin/estate. 

Click here mortgage life insurance

Life insurance doesn’t have to be linked into your mortgage specifically although, for most of us, the mortgage is the biggest debt that will have to be paid so it will come into the equation somewhere. Generally, when we take out life insurance we factor in the money that our loved ones will need to survive financially without us.   If this comes to more than the mortgage debt then income insurance  may be a better option. 

The amount you take out in a policy will depend on your circumstances. The easiest way to work this out is to look at what your salary currently pays for now (and will have to in the future) and how dependant your dependants are on the money you bring in! So, for example, Mr A who has a working wife, no kids, a personal loan and a mortgage will need less mortgage cover than Mr B who has 4 children under 10, a wife who doesn’t work, a mortgage, a loan and a dog to take care of!

Whether you choose to take out mortgage insurance or life insurance here do make sure that the cover you get is the cover your family actually needs. And, shop around for quotes as this is the easiest way to get good cover at a low cost.