Hi,
Quick question:
When you take out Life Insurance to cover just repayment of your mortgage principle, should the premium reduce annually as the principle reduces?
I presume so?
Thanks!
/M.
A form of life assurance where the cover decreases is commonly used to protect a repayment loan.
This type of cover is cheaper than other types such as level cover because the sum at risk is reducting as time goes by. The insurer calculates an average premium to provide a reducing amount of cover. The premium is fixed at the outset and does not decrease.
A point of note or warning - one provider - Acorn Life is offering a mortgage protection plan where the initial premium is attractively low but it increases (yes I said increases) each year by 2% or more. So for longer terms depending on the discount the broker arranging the cover with Acorn goes for it is not always better for you to go with such a product.