A Guide to Level Term vs. Decreasing Term Mortgage Protection.
When it comes to safeguarding your home and family’s financial future, mortgage protection is key. In Ireland, two common options are Level Term and Decreasing Term.
Level Term Mortgage Protection
This is a straightforward insurance plan that offers a fixed amount of coverage throughout your mortgage term. The amount insured stays the same over the life of the policy, so as your mortgage balance decreases, the remaining balance of the policy will be paid to the surviving estate if you were to pass away. This provides an extra layer of protection for your family if you pass away during the lifetime of the mortgage ensuring your loved ones will always receive a certain level of protection along with clearing the mortgage itself.
For example: John and Mary have a level term policy of €400k for their mortgage. After a number of years John passes away and at the time of death, the mortgage balance is €300k. The level term policy is implemented and paid out, which clears the mortgage of €300k and provides a lump sum to Mary of €100k.
Benefits of Level Term Mortgage Protection:
- Consistent Coverage: Your family gets the same level of financial protection, no matter when a claim is made.
- Peace of Mind: Knowing your loved ones will receive a lump sum along with clearing the mortgage in the event of your death brings peace of mind.
- Flexibility: The payout can cover the remaining mortgage balance, helping your family stay in their home without financial strain.
Decreasing Term Mortgage Protection
This is designed to match your mortgage balance as it decreases over the length of the mortgage. As you make mortgage payments, the outstanding balance reduces, and so does the coverage amount of the insurance policy. This ensures that your family is protected against the remaining mortgage debt.
For example: John and Mary have a decreasing term policy of €400k for their mortgage. After a number of years John passes away and at the time of death, the mortgage balance is €300k. The decreasing term policy is implemented and paid out, which only clears the mortgage of €300k but does not provide any additional payout to Mary.
Benefits of Decreasing Term Mortgage Protection:
- Cost-Effective: Because the coverage decreases over time, this type of policy is often more affordable than level term.
- Tailored Coverage: It aligns with your mortgage balance, ensuring your loved ones are always protected against the remaining debt.
- Mortgage Protection: It serves its primary purpose of safeguarding your family’s home by covering the outstanding mortgage debt if you pass away.
Choosing between Level Term and Decreasing Term Mortgage Protection depends on your situation. Level Term offers stable coverage, while Decreasing Term is cost-effective and tailored to your mortgage balance. Consult with a financial advisor to find the best fit for your family’s security.