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Types of Life Assurance
What types of life assurance are there?
Life assurance arranged to pay off your mortgage in the event of death is usually arranged in one of 2 ways; Decreasing term assurance and Level term assurance.Decreasing term assurance is designed specifically for a capital and interest (repayment) mortgage. The term and amount of the decreasing term assurance is usually the same as the mortgage. For example if you take out a £100,000 mortgage over 25 years, your decreasing term assurance will also be for £100,000 over 25 years. As you pay your monthly mortgage payments, the amount owing decreases slowly. So in year 10 of the above £100,000 mortgage you may only owe £70,000. Because the insurance company has calculated how much will be paid out in the event of death at this point, the policy will pay out £70,000 premiums which you pay to the Insurance company will remain constant.
Level term assurance was designed to cover the interest only method of repaying your mortgage The term and size of a level term assurance policy will usually match the term and size of the mortgage. The amount of level term assurance remains the same throughout the term of the policy, so if you take out £100,000 worth of cover at the beginning, this is the amount you will be covered for during the term of the policy. As the capital element of your mortgage does not decrease, nor does the sum assured for Insurance purposes.
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