Mortgage Life Insurance is a form of insurance specially designed to protect a repayment mortgage. If the policyholder were to die while the mortgage life insurance was in force, the policy will pay out a capital sum that will be just sufficient to repay the outstanding repayment mortgage.
When the insurance commences, the value for the insurance cover must equal the capital outstanding on the repayment mortgage and the policy’s termination date must be the same as the date scheduled for the final payment on the repayment mortgage. The insurance company then calculates the annual rate at which the insurance cover should decrease in order to mirror the value of the capital outstanding on the repayment mortgage.
Some mortgage life insurance policies will also pay out if the policyholder is diagnosed with a terminal illness from which the policyholder is expected to die within 12 months of diagnosis.
It should be noted that insurance companies sometimes add other features into their mortgage life insurance policies in order to reflect conditions in their country’s domestic insurance market and their domestic tax regulations.
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