Mortgage Insurance

When a borrower applies for a mortgage loan, a lot of mortgage lenders will require them to obtain some type of mortgage insurance. Most lenders will actually insist that they do so. The advantage of someone obtaining a type of mortgage protection would actually mean that, if they were to die during the term of their mortgage loan, their loved ones would have the ability to repay the mortgage in full payment meaning that they would not have the possibility of losing their home. The majority of mortgage lenders will make it compulsary that a borrower obtains this type of Mortgage Insurance basically because it will make sure that they have the ability to be able to receive their loan money back in the event of the borrowers death.

There are about three forms of mortgage insurance that a borrower can obtain when they apply for their mortgage loan. These are Life Insurance, Mortgage Protection Insurance and Mortgage payment protection insurance.

Life Insurance - A Life Insurance policy gives a lump sum pay out to the borrowers next of kin, in the event of their death. This will only occur if the policyholder dies during the life insurance policy term. When an individual starts up their Life Insurance policy they will be required to state the amount of insurance cover that they would like and the period of time for which they will want the cover for. If the policyholder was to die during their insurance policy's period then their policy would give the sum of money that they specified at the start of their Life Insurance policy to their next of kin. Basically this means that the amount of money that they are covered for will stay the same throughout the whole duration of their Life Insurance policy. For this reason, a Life Insurance policy is also called a Level Term Assurance policy.

With life insurance policies, a maximum of two people can actually be covered. Therefore, if someone has a joint Mortgage they may want to consider obtaining a joint Life Insurance policy. These joint Life Insurance policies will actually pay out a sum of money when the first policyholder of the two policyholders covered by the insurance dies, although it will just pay out this once.

A lot of people will decide for the Life Insurance policy to actually cover them for the precise amount of money at which the mortgage loan is currently standing at. They will also require it to be for the same period of time for which their mortgage loan is currently running for. A Life Insurance policy, is most generally used as a protection for the Interest Only Mortgage loans. The sum of money that a borrower will owe on their Interest only Mortgage will not reduce over the mortgage period and with these Life Insurance policies, the amount that the borrower is covered for also does not decrease over time. Life Insurance can also be obtained for protection on all forms of loan repayments.

The charge for a Life Insurance policy will really depend on the policyholders age, if they smoke, if they require a joint policy or a single policy, the amount of cover required and the length of time they want their Life Insurance policy to run for. Other points that could effect the amount of the Life Insurance cover would include the borrowers medical history, their occupation and their general lifestyle.

Mortgage Protection Insurance - This form of insurance is cheaper than that of Life Insurance. This is because unlike a Life Insurance policy, the borrowers Mortgage Protection Insurance cover will decrease over the length of time. This type of insurance has been specially designed so it can be used in alongside the Repayment of their mortgage loan.

Mortgage Protection Insurance basically decrease in line with the borrowers repayment Mortgage. This is basically so that in the event of a policyholder dying, the Insurance policy would give out a one time lump sum. This amount of money would cover the rest of the mortgage loan so it can be paid off in one go. It is also a possibility to hold a joint Insurance policy for the mortgage protection. This would run the exact way that the Life Insurance policy would.

Mortgage payment protection insurance - This insurance basically covers the policyholder in the event of losing their job. This insurance can also cover the self-employed, however it tends to ask them to sign on as being unemployed in order to make a claim.