There are so many life insurance products on the market that the average person can be forgiven for not knowing the difference between a life insurance policy and mortgage life insurance policy.

Despite having similar names, these two products have very significant differences – both in terms of value for money and policy structure. 

In this blog, we compare the different features of both of these products so that when you’re ready to take out insurance, you can sign on the dotted line with confidence.

What Are the Differences Between Life Insurance & Mortgage Life Insurance?

While most Australians have a general idea about what life insurance is and why it’s a good idea to have at least a basic policy, few people have heard about mortgage life insurance – an alternative insurance product that has a reputation for being inflexible and often providing policyholders less long-term value.

If someone is trying to convince you about the merits of taking out a mortgage life insurance policy, make sure you familiarise yourself with the key differences between this type of insurance and life insurance that are listed below.

Basic Information About Life Insurance Policies

What is the aim of a life insurance policy? A life insurance policy is designed to pay out a lump sum if the insured person dies or is diagnosed with a terminal illness.

How much cover do life insurance policies offer? Most insurers allow you to choose how much you’d like your life to be insured for, but this figure will usually have to be within a certain range that the insurer has calculated based on your risk profile, income and net worth.

Who are the policy benefits paid to? A life insurance policyholder can nominate one or more beneficiaries who will receive the value of their policy in the event of the insured person’s death. Life insurance policies often include terminal illness cover, which allows the insured person to personally receive a lump sum if they are diagnosed with a terminal illness and given 12 months to live.

What happens to the policy value over time? The value of a life insurance policy will not change over time unless the policyholder elects to increase their amount of coverage.

When does the policy cease? Life insurance policies usually cease when the insured person reaches a certain age – retail policies will typically cover you until at least age 99. When a policy is terminated due to the age of the insured individual will depend on who the insurer is.

How stringent are underwriting guidelines for life insurance policies? How much you pay for your life insurance is determined by your “risk profile”, which takes into account your age, health, lifestyle and occupation among other factors. Insurers are known for being very thorough when assessing your eligibility for life insurance and sometimes they request that applicants undergo medical examinations before they are approved.

Basic Information About Mortgage Life Insurance Policies

What is the aim of a mortgage life insurance policy? In Australia, if you die unexpectedly your home loan will usually get paid before your beneficiaries. Mortgage life insurance is a very specific type of life insurance policy designed to pay off the remainder of your mortgage if you pass away. Terminal illness cover is not commonly offered with this type of policy.

How much cover do mortgage life insurance policies offer? You can only insure the value of your mortgage or less with this type of insurance.

Who are the policy benefits paid to? The benefits of mortgage life insurance policies are paid directly to the bank or another lender that holds your mortgage. This is one of the key benefits of mortgage life insurance, as policyholders who don’t trust their beneficiaries to handle a lump sum responsibly can rest assured knowing that the benefits of their policy will be put to good use.

What happens to the policy value over time? Unlike a regular life insurance policy, the value of a mortgage life insurance policy decreases over time. Initially, the value of the policy will be the same large amount of money as is owed on the mortgage. However, as more and more of the mortgage is paid off, the value of the policy will drop to match the amount still owing.

When does the policy cease? The policy’s termination date is the same as the date that you’re scheduled to make your last mortgage repayment. Once you have paid your home loan, your mortgage life insurance policy ceases to exist.

How stringent are underwriting guidelines for mortgage life insurance policies? Underwriting standards amongst Mortgage Insurance providers vary. There are some policies that will require no underwriting and exclude all pre-existing conditions whilst there are others that require comprehensive underwriting.

Need Help Finding the Right Insurance Products for You?

When it comes to getting insured, few people realise that half of the battle is finding the best type of insurance to match your life’s circumstances.

With the help of Cover Australia, there’s no need to spend countless hours researching insurance products, policies and providers on your own.

Our team of advisors understand the ins and outs of life insurance market, and can provide you with the information you need about:

  • Life insurance
  • Trauma insurance
  • TPD insurance and;
  • Income protection insurance

To find the cover that’s right for you, simply call 1300 366 817, email or fill out our online contact form to request a callback from one of our friendly staff.


General Advice Disclaimer

General advice warning: The advice provided is general advice only and in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

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