What is the difference between mortgage life insurance and life insurance?
Mortgage life insurance normally refers to a reducing term policy designed to follow the reducing capital of a repayment mortgage. Life insurance is a broad term covering all kinds of insurance which pay on death, and would include level term insurance, reducing term insurance, whole of life insurance, and others. | 12.30.10 @ 23:09
It is also worth noting that decresing term (or as you name it, mortgage life insurance) can vary wildly from one provider to another as there is no set % that the policy will decrease each year so when choosing such a plan you need to ensure that the decrease is not happening more rapidly that the actual mortgage otherwise you could still theoretically end up with a shortfall. | 12.30.10 @ 23:34
The point that Darren mentions above can be controlled by the financial adviser when doing to quotation for the decreasing term insurance. This is because the rate at which the amount mortgage and therefore the amount of cover needed decreases depends on the mortgage interest rate. The higher the interest rate the slower the loan decreases, especially in the early years.
You or your adviser will have to make an assumption about the highest rate of interest that you are ever likely to pay on the loan and then to use that for the quotation. It is not uncommon to see interest rates of 15% or 16% used in illustrations. There will be many people with mortages now who can remember interest rates at these levels! | 12.31.10 @ 10:43