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Mortgage Life Assurance Becomes Relevant

With the UK economy slowing and house prices falling the usefulness of mortgage life insurance is being brought into focus.

Correctly known as Mortgage Decreasing Term Life Assurance because it covers a mortgage debt which is being repaid, therefore the risk factor steadily decreases over the term of the mortgage and ceases altogether at the point when the mortgage payments are scheduled to cease. This has the same mortgage security basis as an endowment mortgage and is therefore of no interest to an endowment mortgage holder. Take care to avoid confusing the MDLA with Mortgage Payment Protection Insurance - the latter has the sole purpose of covering your mortgage payments when you are unable to pay, for specified reasons such as illness or loss of job, although some insurers are prepared to cover for death in the same policy.

If you have dependents then MDLA can be considered very worthwhile. The cost is not as high as other types of life insurance because in its later years the sum covered is of course quite small, dwindling to zero at the end when the mortgage should be paid up. The disadvantage is that although it provides terrific security, especially in the early years, there is inevitably nothing left when the mortgage ceases. A possible alternative to the MDLA is a low cost level term assurance policy, and it could be useful to compare the two at the outset. The cost will be greater because the level term policy pays a fixed sum from start to finish, and for a true comparison this sum should at the start be sufficient to cover your full mortgage commitment, as does the MDLA.

The true worth develops as time goes by - as stated, the value of the MDLA decreases constantly until at the end of the term it stands at zero, whereas the level term assurance policy is (subject to inflationary factors) worth exactly the same throughout its existence. This means that up to the end of the term it will be worth far more than the remaining mortgage payment, so it will cover that cost and leave a useful sum available for dependents.

Finally, if you have a joint mortgage check also on the price for a joint policy where it is the 'first death' that triggers the payment - you may find it cheaper. Do your comparisons and ensure that the premiums are fixed, and then go for the cheapest quote given by a reputable company - there is nothing to gain from paying over the odds.