Mortgages: 5) Buying the right insurance for your mortgage

Your mortgage is one of the single biggest things that you will do throughout your life. For most of us it is a long-term loan, which will be sanctioned only if we agree to give our properties as security.

It is vital therefore to ensure that this investment is securely protected and that you have an insurance policy in place to cover you should things go wrong.Nobody wants to put his or her home and risk and although we sometimes view insurance as a necessary evil, in this case it is of utmost importance.

You are legally obliged by entering into the contract with your lender (where your private home is being taken as security) to have your mortgage amount insured over the term of the mortgage. This is by way of a mortgage protection policy, which can also be referred to as life assurance.

Prior to cheque issue your Lender will require that you provide them with an original policy document to show that all borrowers in relation to the mortgage have adequate mortgage protection in place. In addition to this, they will be looking for this policy to be assigned to them for the duration of the mortgage so that it can be cleared in the event of death of any of the applicants to the mortgage. This is the most basic type of policy, which you can take out with your mortgage, and essentially it only protects the interest of the Lender as there is no further cover built in to the policy.

Of course, there are numerous ways in which you can structure your life policies in accordance with the level of cover that you are happy with. In general, basic policies will decrease in value along with your outstanding mortgage leaving no further benefits at the end of the term. However, you can also get level cover, which means that your sum insured will remain the same as it's original value throughout the term of your mortgage. This means that there are surplus funds on your policy until the end of its term.

It is possible to build many types of cover into these policies in order to protect against many eventualities for example: serious illness cover, which would be structured in a way that your mortgage would be cleared should you contract a serious illness. At times like these, we would all value the ease of mind knowing that you are not under additional worries in the form of financial strain.

It is important in this respect also to be well advised by a specialist in this area. They will be able to guide you through the maze of various policies that are available to you and point you in the right direction with regards to how you could best protect both your home and your family. Leave yourself plenty of time to arrange this as life companies may require further information from you such as medical questionnaires, medical examinations to be carried out. Also, if you have a pre-existing condition such as asthma, you will be required to complete a questionnaire to advise of the extent to which you suffer from this and any medication that you may be taking for it.

Similarly if you engage in extreme sports as a hobby you may also be required to complete a questionnaire regarding the extent of danger you are in while pursuing these hobbies. If a life company feels that you are in a higher risk category, your mortgage protection premium may be higher than originally quoted.

Your financial interest is not the only thing that you should be insuring. You must also have an insurance policy in place for your property prior to cheque issue.

Luckily, insuring your home is not as complicated. You will need to have the interest of your Lender noted on the policy document. This is so they can guarantees that if anything was to happen to your property, you have adequate cover in place to rebuilt it to it's former state, as it is the property which is being used as security in relation to your mortgage. You must also submit a letter of indemnity to your Lender, which will outline the level and period of your insurance. This is available from your insurance company.

It is additional expense to take out insurance policies in relation to your mortgage. On the other side of the coin however, it would be financial suicide to find that you were not properly covered should a situation arise where you need to make a claim.

Establish what your options are both financially and personally with regards to protecting yourself and your assets. That way you know that you can sleep soundly in the knowledge that you are being protected.