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  • 6 of 10 UK mortgage holders have life cover
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Know the difference: Which insurance products you can use to cover your mortgage

Mortgage life vs. PMI vs. Payment Protection vs. Level Term vs. Whole Life - Which of these insurance products can you use to cover your mortgage?

To the uninitiated, life insurance is basically something that pays the beneficiaries when you die. Life insurance has long since evolved and became a somewhat more complicated creature. Insurance products now run a gamut of benefits and features aimed towards meeting the needs of various individuals. The same goes for your mortgage. There are a number of insurance products that can help protect your mortgage.

Let’s take a look at the different life insurance products you can use to cover your mortgage and consider the distinctions:

Mortgage Life Insurance

This will pay to cover the remaining debt on your mortgage upon your death. The most common type of mortgage life insurance is a decreasing term life coverage, which is designed to decrease the coverage amount as you pay off your loan. There is an option to get mortgage life insurance with critical illness cover. The critical illness will pay out in the event that you are diagnosed with a critical illness.

Why you need it: Mortgage life insurance ensures that the mortgage is paid off if you die (or get critically ill, if this is available). Learn more about when and why you will need mortgage life cover.

Pros of Mortgage Life Insurance

Cons of Mortgage Life Insurance

Private Mortgage Insurance (PMI)

Although it also has the words “mortgage insurance”, this is primarily an insurance to cover the interests of the lender on your loan. When you default on your mortgage payment for whatever reason (death, unemployment, sickness), mortgage insurance will pay the lender the remaining amount of the debt. This is different from mortgage life insurance. Read more about the comparison between the two types of insurance.

Why you need it: Private Mortgage Insurance is required if you only pay the minimum down payment on the property.

Pros of PMI:

Cons of PMI:

Mortgage Payment Protection Insurance

This covers the mortgage payment in the event that you cannot earn an income because you got sick, injured or unemployed. The payments from are limited to a number of months, or until the Insured Person is able to earn an income, whichever comes first.

Why you need it: If you are concerned about sickness, accident or unemployment, this will help tide you over as you try to get back on your feet and regain earning an income.

Pros of MPPI

Cons of MPPI

Level Term Insurance

This is a life insurance product that provides you with the same policy amount for the duration of the policy. This can also be used to cover your mortgage (as well as other things) when you die. Term insurance means that you pay cheaper premiums but don’t stand to receive anything when the policy contract expires.

Why you need it: Read our article about term life insurance to see what it provides and how it differs from mortgage life cover.

Pros of Term Life Insurance

Cons of Term Life Insurance

Whole Life Insurance

This is a permanent life insurance policy. It accrues cash values over time and this cash value earns interest that can be used to pay for future premiums, get a paid-up policy (where premiums are all paid up for a smaller amount of coverage) or withdrawn as cash. A whole life insurance policy will provide cover for one’s lifetime.

Why you need it: Whole life insurance policy provides long-term coverage where the proceeds can be used for the Person Insured’s end of life expenses. The proceeds may also be used to pay up the mortgage.

Pros of Whole Life Insurance

Cons of Whole Life Insurance

Latest update: 16.06.2013

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