Mortgage Protection (Decreasing Term Insurance)
Mortgage Protection insurance, or decreasing term life insurance, as it actually is; provides for a guaranteed lump sum to be paid out, which will decrease each 'policy year' usually in accordance with a set table laid out in the policy document. (Each policy year starts on the anniversary of the date the policy originally started.)
If desired, critical illness cover may be included, at an extra cost. Critical illness cover can normally only be included when the policy is originally taken out.
This type of cover is normally considerably cheaper than non-decreasing cover, and is most commonly associated with providing cover for a repayment, 'capital and interest' mortgage or loan, the outstanding balance of which reduces over time. It is not suitable for an interest-only mortgage.
The term of the policy would usually be the same as that of the mortgage it is intended to repay in the event of a claim. For example, a 25-year mortgage would have a 25-year decreasing term policy.
The cover will end on a specified date, which will be detailed in the policy document. There will be no cash return, except in the event of a claim within the term of the cover.
Some mortgage protection insurance providers, (subject to certain conditions, for example, mortgage interest rates not exceeding 10%) provide a guarantee that the policy will be enough to repay the outstanding mortgage in the event of a claim.
If the premiums of the decreasing term plan are guaranteed, this means they are fixed and will not increase for the duration of the policy.
If the premiums are reviewable, your premiums can be increased if your insurance company has heavier than expected claims from its other customers.
