Mortgage protection insurance vs life insurance | RateCity

If you choose to take out a life insurance policy, the beneficiaries named in the policy receive a lump sum payment when you pass away. The amount of money they get depends on how much life insurance cover you have purchased. Life insurance can also offer some form of payout if you become terminally ill and cannot work. 

A life insurance policy is one way you can ensure that surviving family members have enough money to help cover any financial responsibilities. Once they receive this payout, they may be able to use it to pay off your mortgage. Using the insurance payout to pay off the mortgage before any other financial obligations can help reduce the risk that the lender will repossess the home if repayments aren’t made. 

As long as you’ve taken out a policy large enough to cover the assumed cost of your mortgage, life insurance should help your family if you die or get ill. Most policies limit the payout sum, but you can research and compare policies to see which one might be best for you.

Mortgage protection insurance is different from life insurance as it's specifically designed to cover mortgage repayments when an unfortunate event occurs. It can include cover against involuntary job loss, injury, illness or death, differing from life insurance, which only covers death and terminal illness.

Taking out mortgage protection insurance would mean that your family can choose regular monthly repayments that help cover the mortgage repayments or a full lump sum. With life insurance, on the other hand, the payout is generally only offered as a lump sum. 

The main deciding factor when choosing between mortgage protection or life insurance is that money from a mortgage protection insurance policy can only be used for mortgage repayments. If you want to help support your family and cover other expenses, you need to consider alternative or additional insurance options. In the case of life insurance, beneficiaries can use the payout for the mortgage, any other pressing needs or, if the amount is enough, cover everything. 

Life insurance premiums mainly depend on the individual whose life is being insured and varies based on age, health, profession, and smoking habits. With mortgage protection insurance, all these factors do impact the cost, but the home loan amount also plays a part.

When deciding whether to go for mortgage protection insurance or life insurance, consider the kind of coverage you require and your risk factors and compare what each option will cost you.