First time buyers - Life Cover

Your mortgage company will normally insist that you obtain life assurance (sometimes called Term Life Cover) so that the value of the mortgage can be paid off in the event that you die. This life assurance (note that it's not 'life insurance', this is for pedantic insurance jargon reasons; you can only 'insure' something against a chance event, not against a certainty, and it is a certainty that you will die, hence it's not 'insurance', but 'assurance') used to be very expensive - if you bought a policy in the 1980's then the rates were sky high as life companies were very nervous about the impact that AIDS might have on their customer's life expectancy. As time has gone by these firms have been able to adjust their pricing and rates are now at what could arguably be called a sensible level again. When you take out life cover you can select two basic types:

1. Level term
2. Decreasing term

Level term assurance means that you take out a policy for the same value as your initial borrowing from the mortgage company – i.e. if you had a £100,000 mortgage you'd take out a £100,000 term life policy. These run over the period of your mortgage - say 25 years - you pay the life firm a monthly premium and if you die in those 25 years then they will pay out £100,000. At the beginning of your mortgage this means that the total value of the policy will be used to clear the debt to the mortgage firm, but if you died 24 years into your mortgage most of the £100,000 loan would have been paid off, and the remainder would pass to your named beneficiary.

Decreasing term assurance means that there is no remainder at the 24 year point – essentially the level of cover decreases to match your outstanding mortgage balance. This cover is obviously cheaper to buy as there is less benefit in the later years.

With both decreasing term and level term there is normally no cash in value to the policy, it is not a savings plan of any kind. You should take care to check out the terms and conditions of any policy you are interested in, making sure that it meets your needs.

You can buy life cover online at www.vivid-mortgage-protection.co.uk.

It's worth noting that life cover will only pay out if you die, it wont help if you are unable to work through accident, sickness or unemployment – it makes sense to insure your mortgage payments, so that even if you cannot work your home is safe. You can get a mortgage protection quote here.