What is Mortgage Repayment Cover?
If you’re a homeowner, you probably have a mortgage. If you didn’t need a mortgage or have paid yours off already, congratulations! But most people have one, and it plays a big part in their lives. You work so you can pay your mortgage. It’s your largest outgoing and the first thing you pay every month.
- There are 11.1 million active mortgages in the UK 1.
- In Q4 of 2018, the outstanding value on all the mortgages in the UK totalled £1.442 billion 22.
Most mortgages last around 25 years. A lot can happen in 25 years. You don’t want to think about it, but it’s possible you could die during the term of your mortgage. You could have an accident or contract a disease. It’s not pleasant, but it’s true. What happens if you die during your mortgage? Are the loved ones you leave behind able to cover your share of the payment? If they can’t, you need Mortgage Repayment Cover.
Definition of Mortgage Repayment Cover
When you take out Mortgage Repayment Cover, you can stop worrying about what would happen if you died during your mortgage term. Mortgage Repayment cover will pay a lump sum to your beneficiaries if you die or contract a terminal illness, during the length of your cover’s term.
If you die, your Mortgage Repayment Cover will match the amount you owe on your mortgage.
You get to select how long you want your Mortgage Repayment Cover to run for. If it pays out or you reach the length of your term, your payment ends.
Why mortgages need insurance
The main reason Mortgage Repayment cover exists is that your mortgage provider demands payment, every month without fail. There are no exceptions, even for death.
If you hold your mortgage jointly with a partner and you die, they must apply to your mortgage provider to transfer the mortgage over to them. If the provider does not approve this, they may repossess your house and sell it to recoup their investment.
If you are the sole mortgage holder and you die, again, your lender can demand the full sum from your estate. If your executor cannot pay it, they can repossess and sell your home 3.
If your partner or next of kin cannot meet this obligation, Mortgage Repayment Cover is there to help.
How Mortgage Repayment Cover works
Mortgage Repayment Cover is simple. Every month you pay a premium to your provider. In return, they provide a level of cover to match the amount you owe on your mortgage.
As you progress through your mortgage term, paying a portion of it off every month, the amount you owe goes down. For this reason, with Mortgage Repayment Cover, the level of cover you need falls every month. Your monthly premium will decrease too. This type of life insurance is often called ‘decreasing term’ life insurance.
You can choose to add Critical Illness Cover or Terminal Illness Cover to your Mortgage Repayment Cover package. If you do this, the amount of cover also decreases as you go.
Critical Illness Cover brings the added benefit of covering your mortgage if you cannot work due to illness. Terminal Illness Cover, which pays out if you get a diagnosis of less than 12 months less to live, helps you settle your affairs while you are still alive.
Factors affecting the cost of Mortgage Repayment Cover
Like most other life insurance policies, how much you pay for your Mortgage Repayment Cover depends on your personal circumstances.
- Your age
- Your lifestyle (e.g. whether or not you smoke)
- Your job
- Your health history
All these factors help your provider assess the risk of insuring your mortgage.
How does Mortgage Repayment Cover help?
Mortgage Repayment Cover provides you with peace of mind. It lets you know that if you die, your loved ones will not lose their home. You give relief to the people you love at what is already a stressful time.
Because Mortgage Repayment Cover covers your mortgage and nothing else, with the level of cover and premium decreasing over time, it is efficient. You don’t pay for protection you don’t need.
Safeguarding your investment
Finally, it safeguards your investment in your home. Without it, you could spend more than 20 years paying your mortgage every month, but still lose your house if you died before making the final payment.
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We hope this article has helped you understand the ins and outs of Mortgage Repayment Cover. To find out more, subscribe to Sherpa.