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A Mortgage
Protection Policy is similar to a Term Assurance Policy - the
difference being a Mortgage Protection Policy reduces every year
and is designed to repay a Capital & Interest Mortgage (also
known as a Repayment Mortgage) if the borrower dies before the
end of the mortgage term. As the mortgage reduces every year, so
does the sum assured under the policy.
For example,
Sam has a new 25 year capital & interest repayment mortgage for
£80,000 and takes out a Mortgage Protection Policy for £80,000.
Fifteen years later, Sam dies still owing £30,000 to the
Building Society. His policy has reduced over the 15 years
and is now worth £30,000. This is the amount that would be
paid. If Sam lives for 25 years and a day, his mortgage
would be paid off and the policy would expire.
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A Mortgage
Protection Policy is usually cheaper than a Level Term Assurance Policy with
the same sum assured, because the longer a policyholder live the less the
insurance company have to pay on death.
Nowadays, most
Companies will pay the sum assured if, during the plan term, you are
diagnosed as suffering from a terminal illness.
A
Mortgage Protection Policy can include Critical Illness Cover if required.
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