MORTGAGE INSURANCE OPTIONS
Q I’ve been advised to take a decreasing term life insurance on my mortgage because it’s more reasonable. However, I’m concerned that in years to come it will be of no benefit. Please advise.
A A decreasing term life insurance policy is the most cost-effective way of covering the mortgage on a property, where you are repaying the principal and interest on the loan, over a period of time. The policy covers only the outstanding amount of the loan at any given point of time, as the life cover goes down progressively every year, whereas the premium remains constant. An alternative to the decreasing term is the level term policy, where the cover remains constant throughout the term. In case of death of the life-insured, the policy not only covers the outstanding loan, but also provides a lump sum for the family. Hence the premium will be higher than that of a decreasing term policy.
Yet another alternative is a Whole of Life plan, which will have cash value build up over time and offers greater flexibility. Premiums are higher, but this could be the best option for mortgage cover.
TARUN KHANNA is CEO of Nexus Insurance and has over 18 years of experience in the financial sector