# Mortgage protection - Level Term cover versus decreasing term?



## Sophia2457 (22 Nov 2007)

Hi

Could some one explain to me the advantages of Level Term cover for mortgage protection life assurance as opposed to Decreasing Term please?

I find the jargon really difficult to understand and I can't seem to grasp why the more expensive Level Term would be more beneficial to me?

Many thanks

Sophia


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## ailbhe (22 Nov 2007)

Ok. here goes  

Lets say you have a mortgage for 300k. You get level term for 30 years at 30 per month (all vague examples here).
Then in 15 years your mortgage is 200k (as you've paid off 100k). You die (God forbid). Your other half/kids get 300k. 200k to pay off mortgage and 100k balance.in other words the amount you are insured for is the amount you get regardless of what is outstanding on your mortgage.


On the other hand you might get decreasing cover. You die in 15 years. the 200k outstanding on the mortgage is paid off but there is no balance. The amount paid is just enough to pay off the mortgage whether that is 200k or 200 euro. So it decreases in line with what is left outstanding on the mortgage.


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## ClubMan (22 Nov 2007)

Mortgage Protection and Mortgage Repayment Protection Policies


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## niallliam (22 Nov 2007)

Decreasing represents very poor value for money. Level though dearer is better value ie you pay the same premium for the same cover throighout the term.  With deccreasing at the time you are most likely to claim ie when you are oldest it pays out bugger all after all those contributions.  Decreasing should only be an option if you can't afford level.


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## ClubMan (22 Nov 2007)

niallliam said:


> Decreasing represents very poor value for money.


Why?


> Level though dearer is better value ie you pay the same premium for the same cover throighout the term.


Same with decreasing term.


> With deccreasing at the time you are most likely to claim ie when you are oldest it pays out bugger all after all those contributions.  Decreasing should only be an option if you can't afford level.


You seem to be confusing general life assurance with mortgage specific protection life assurance. Many people advise that you keep the two separate and just take the cheapest cover (usually decreasing term) for the mortgage.


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## PM1234 (22 Nov 2007)

niallliam said:


> Decreasing represents very poor value for money. Level though dearer is better value ie you pay the same premium for the same cover throighout the term.  With deccreasing at the time you are most likely to claim ie when you are oldest it pays out bugger all after all those contributions.  Decreasing should only be an option if you can't afford level.



This depends on the life assured's personal circumstanes. Decreasing mortgage protection is specifically used to cover the mortgage and as a cheaper option is suitable for this purpose.  

If the life assured doesn't have dependents they most likely, do not particularly need or want to pay increased premiums for a payout in the event of their death. 

With dependents it is often a good idea to keep life cover and mortgage protection separate.


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## Bronte (23 Nov 2007)

OP be aware that if it's an investment property, then the decreasing term insurance premiums can be written off against rental income.  I agree with what PM1234 says.


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## ClubMan (23 Nov 2007)

If it's an investment property then one should question the need for mortgage protection life assurance at all!


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## chippengael (18 Feb 2008)

ClubMan said:


> If it's an investment property then one should question the need for mortgage protection life assurance at all!


 

Sorry- I don't follow... are you saying it's a waste of money as the tennants will just pay off the mortgage anyway?


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## ClubMan (18 Feb 2008)

No - I'm saying that mortgage protection life assurance is generally mandatory on an owner occupied property and makes sense since it clears the mortgage for the next of kin (e.g. spouse/partner, dependents) in the event that the mortgage holder dies. However with an investment property if the next of kin cannot deal with the outstanding mortgage then they can just liquidate (sell) the property since it is not their home.


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## RS2K (18 Feb 2008)

Bronte said:


> OP be aware that if it's an investment property, then the decreasing term insurance premiums can be written off against rental income.



I do not believe you are correct here.


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## csirl (19 Feb 2008)

With these two products you need to ask yourselve the question:

"Am I taking out insurance because its a condition of my mortgage that the outstanding balance be insured against in the event of my death (which isnt a bad idea anyway if have dependents) OR Am I taking out life insurance to give my dependants a payout when I die?"

The two are seperate things and should be treated as such.

You generally find that banks will try and scare you into taking the full whack as it is profitable for them. The decision whether or not to take out life insurance should not be taken lightly or under duress - you need to consider your personal circumstances, risks and what products out there are most appropriate for you. Its not the type of thing you should tag on to your mortgage without careful thought.


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## chippengael (20 Feb 2008)

ClubMan said:


> However with an investment property if the next of kin cannot deal with the outstanding mortgage then they can just liquidate (sell) the property since it is not their home.


 
Yes, I see, but you are obliged by the bank to take out mortgage protection insurance upon purchasing your PPR. If you then move out and your PPR becomes an investment property, is this obligation seen as unnecessary by the bank?


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## ClubMan (20 Feb 2008)

It's up for negotiation with the lender.


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## rtednie (14 May 2012)

I know that I am late to the party, but here it goes. 

When using term insurance please keep this in mind. Mortgage companies pay all premiums to the insurance company upfront which means that they add the term premium to the motgage, itself. This means that you are now paying interest on your term insurance. 

eg: $100,000.00/30 year Mortgage; 30 year term inusrance @ $20.00/month = $7200.00 over the life of the term (30 years) 

The mortgage co. pays the $7200.00 to the insurance co. at closing. They then place the $7200.00 onto the mortgage making the mortgage $107,200.00 charging you interest on the 30 your term insurance premium.

Everyone is happy, but you! The insurance co. is happy they received 30 years of premiums on day 1. The mortgage co. is happy because they are earning interest on the insurance premiums. 

You are sad because you are getting ripped off. Find a mortgage company that will accept your own insurance company and then get a level term policy. It will be cheaper in the short and long term (pun intended)!


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## LDFerguson (14 May 2012)

rtednie said:


> I know that I am late to the party, but here it goes.
> 
> When using term insurance please keep this in mind. Mortgage companies pay all premiums to the insurance company upfront which means that they add the term premium to yhr motgage, itself. This means that you are now pay interest on your term insurance.
> 
> ...


 
This is an Irish site.  The practice you refer to may occur in the US but it doesn't work like that in Ireland.  In ireland, most people pay their own life insurance premiums by monthly direct debit, and don't borrow for them.


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## Bronte (15 May 2012)

Wow that's some carry on in the USA.  And where they lead on credit we tend to follow (for the next bubble, not currently)


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## Jimbobp (15 May 2012)

Bronte said:


> Wow that's some carry on in the USA.  And where they lead on credit we tend to follow (for the next bubble, not currently)



I can imagine Seany Fitz reading this and thinking 'why didn't we think of that?'


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