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Average
mortgages in the UK is over £100,000.
This amount is usually paid back after
a large amount of time, up to around 25
years. Even with the longest terms, the
monthly amount owed on repayments will
be in the hundreds, maybe in the thousands
of pounds.
Mortgages are secured on your house,
meaning that your house will need to be
valued. Your mortgage repayments come
out of the income of the applicants for
the mortgage. These facts mean that if
for any reason you can't afford the repayments,
the worst case is that you will lose your
home. Thus, it is vital that you take
out insurance to cover yourself should
anything happen in your life which may
cause your to be unable to keep up repayments.
Should the person paying the monthly
repayments die, there may be no way for
the bereaved to keep up the mortgage payments
on the house. A potentially disastrous
situation that could arise here is that
your dependents could lose your home.
You need to take out a life insurance
policy to cover this situation.
The nature of a repayment mortgage is
that you take it out for a certain amount
that you repay over a certain term. Should
everything go right, after that term is
up, you will have paid off your mortgage.
As the term progresses, the amount you
owe decreases. |
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A term insurance policy
is quite similar, in that you are covered
for a certain amount over a certain term,
with the difference being that the insurer
owes you the money should an event occur.
This event would be your death in the
case of term insurance.
With a mortgage, should you take out
a mortgage of £200,000, you would need
£200,000 of cover with your and pay the
monthly payments, at the end of a year
you may have £195,000 left (with most
of your monthly payments going towards
interest in the first year). So, at the
start of the second year, you would only
need £195,000 of cover. After each premium
is paid, you would need a decreasing amount
of cover, which is why mortgage protection
is also called decreasing term insurance.
The sum assured in a mortgage protection
policy reduces by an agreed amount, which
is usually equal, over the course of the
term. The amount will only be paid out
should the person whose life is insured
die during the course of the term. There
is no surrender value and premiums will
be lower than for level term insurance,
due to the sum assured decreasing.
You should bear in mind that the fixed
term means you have no flexibility, and
you can't extend the cover.
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