Choose the right mortgage insurance plan

If your mortgage isn’t covered by insurance, or if you’re planning to take out a mortgage in the near future, have a think about the following questions:

• If you died, would you leave behind enough resources to pay off your mortgage?
• Would you have enough money to meet your mortgage repayments if serious illness stopped you from working?
• If you answered no to either of these questions, have you thought about how your family would repay your mortgage if you die, or if your health lets you down?
  

How does mortgage insurance work?
Most mortgage insurance packages offer a range of different options. You can choose the mix that best suits your needs and your budget. There are basically 3 types of cover:

1. Life Cover – which pays off your mortgage if an insured person dies or is terminally ill.
2. Mortgage Repayment Protection – this pays your regular mortgage repayments if the insured person is not able to work due to sickness or injury for longer than 4 weeks.
3. Trauma Cover – this pays a lump sum (usually either all or part of the mortgage) if the insured person suffers a Trauma condition (like life threatening cancer, paralysis, stroke, etc).
   

Is mortgage insurance the right option for you?
Mortgage Life Cover and Repayment Protection, aren’t dissimilar to ‘normal’ life insurance and income protection. Price wise (for equal levels of cover) they are usually pretty much the same. However, the biggest difference is that mortgage insurance options aren’t as flexible – the levels of insurance tend to be based very closely on your mortgage (for example the ongoing repayments insurance will usually equal your regular repayments, and the life insurance component will usually equal your outstanding mortgage balance). Also, in many cases the money paid if you claim will go directly to your lender. For some people, this has a couple of downsides:

• You or your family have less choice about what the money is used for.
• It can cover your mortgage, but can’t be used for any other purpose (e.g. pay off other debts, provide a ‘replacement’ income, cover funeral costs, and so on).

If your only concern is your mortgage, then mortgage insurance can be a great option. If, in addition to your mortgage, you have dependents and other financial responsibilities, you should consider ‘normal’ life insurance and income protection. Or get your adviser to outlines the pros and cons of both - and then choose.


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