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What is mortgage protection life insurance?

A mortgage life insurance policy will make sure your debt can still be paid off if you die. This could be crucial if your family is reliant on a single salary in order to make mortgage repayments.

Cover comes in three main forms.

1. Decreasing term mortgage

Throughout the course of the mortgage you'll continue to pay the same premiums. However, the amount you can claim decreases as you move nearer to the end of the term.

For example, if you die shortly after taking out a mortgage worth £150,000, the insurance company would pay that back. Should there be much less left to pay — say £20,000 — then that's what the company pays out.

This form of cover comes with some of the cheaper premiums, but you should only take it out if you have a repayment mortgage which pays off capital as well as interest.

2. Fixed term insurance

This form is slightly more expensive, but in return the insurer will pay out a fixed sum regardless of how much is left on the mortgage.

So, if you take out a policy to cover £150,000 you'll be paid that much no matter when you need to cash it out.

Although it is a bit more costly, the big benefit of this option is that it leaves something left over, so your family will not only have the mortgage taken care of, but will have excess cash for all of life's other expenses.

3. Whole of life insurance

These policies stay with you for the whole of your life and not just for the mortgage policy term. These are linked to investments which are used to replenish the fund.

This might seem to be relatively attractive, but the fund only pays out as long as the investments perform well.

Mortgage life insurance with critical illness

Critical illness cover can be a valuable optional extra to mortgage life insurance. With this, you'll receive a payout if you suffer an illness or accident which renders you incapable of doing your job.

You can also add a waiver premium which enables you to stop paying your premiums if you lose your job.

Cost of mortgage life insurance

There is no easy way to calculate this as every mortgage life insurance quote will be different for each person.

Companies calculate premiums based on the risk of having to pay out — in other words, taking a look at your age, sex and health and making a judgement call on how likely you are to make it to the end of the mortgage term.

Some companies will refuse to cover some individuals based on certain conditions. For example some may may refuse to insure over 50s, while others may exclude people with any ongoing health conditions.

By shopping around to compare policies, you can find a better deal.

Look closely at the small print. A cheap premium may indicate limited cover. You should ultimately base your choice on how much cover you want versus how much you want to pay out in your monthly premiums.