What Type of Insurance Policy do I need for a Mortgage?
I believe that everybody does understand that, in general, insurance is a thing providing protection
against a possible eventuality. That’s why there is a plethora of types of insurances you can arrange.
For example, there is car, home, life, health, and income insurance available. Even pets, gadgets and
travel can be covered.
What I’d like to write about in this blog post though, is the confusion that exists between life
insurance and mortgage insurance.
This is a main source of confusion when we discuss mortgages and one of the main questions we get
online – “What’s the difference between life insurance and mortgage insurance and which do I
need?”
(You might have seen many descriptions of insurance for mortgages so let me clear this up now –
Mortgage Insurance. Mortgage Life Insurance. Mortgage Life Cover. Mortgage Protection are all one
and the same thing).
Whilst we deal with these policies every day, I have no doubt that it can all sound quite confusing at
first. The main thing to remember about the two policy types is that they are designed with different
protection purposes in mind.
Life Insurance vs Mortgage Insurance.
Some people want a (life) policy that will help protect their family financially if they were to die
during the policy term. Others may have a need for a (mortgage) policy that could help their family
pay towards the mortgage, should the worst happen.
A life insurance policy differs from mortgage protection in that the cover level remains the same
throughout the life of the policy. Most people choose to have separate life insurance and mortgage
protection policies.
However, you can choose to assign a level cover life assurance policy to a mortgage if you so require,
meaning the balance of cover would be payable to your dependents.
Ooops – that’s a bit technical, sorry. I will admit that it can get a tad confusing when we get into a bit
more detail on the options available. For instance, with life cover the options include:
– Level or Convertible Term Cover,
– Whole of Life Assurance,
– Over 50s cover,
– Income Protection,
– Critical Illness Cover,
– as well as more tailored options.
To further confuse you, by law, your lender must ensure you have mortgage insurance cover in place
when you take out a mortgage. However, there are circumstances when a lender may agree to give
you a mortgage without this cover. Types of this cover would include:
– Reducing Term Cover
– Level Term policy
– Serious Illness
– Existing life cover
I know, I know it can all appear complicated which is why we would love to help you with the best
advice on this matter. Here is a link to our website page that answers some of the most frequently
asked questions on this topic – https://mortgageline.ie/insurance/life-insurance/.
As mentioned earlier – the main thing to establish is what is the purpose of the protection you’re
looking for.
What if I Have Existing Life Cover?
Another pertinent question we get asked is whether an existing life insurance policy would be
accepted for the mortgage. Well, yes is the answer with the following conditions:
– the amount you are insured for is at least equal to the value of your mortgage and it runs for
the same term.
– you would have to ‘assign’ the policy to your lender. This means that you agree to give the
life insurance benefit to your lender to pay off your mortgage if you die during the term.
– any policy benefit left over after paying off the mortgage goes to your dependants. If your
life insurance benefit is used up to pay off your mortgage when you die, there will be no
cash lump sum available for your dependants.
Insurances Example
A sample cost of a mortgage policy (Decreasing Term Insurance) would be as follows –
Husband and Wife age 30 Non – Smokers
Mortgage of €250,000
Term – 35 years
Cost of Mortgage Protection is €22.42 per month
A sample cost for a similar type life policy (Level Term Insurance) would be as follows –Husband and Wife age 30 Non – Smokers
Mortgage of €250,000
Term – 35 years
Cost of Mortgage Protection is €33.13 per month
Our Advice? Your best bet is going with a broker.
Of course, you could always ring all the insurance companies yourself, but do you really want that
hassle? Anyway, one thing we would advise is that you shouldn’t buy Mortgage Protection from your
bank because:
– They don’t offer choice; they only offer policies from their own insurance company.
– They are more expensive than brokers.
– If you ever want to switch to a new lender, they will cancel your Mortgage Protection. You’ll
need to reapply all over again.
– If your health has suffered, you may find it hard to get new cover at an affordable price or at
all.
Remember!
Mortgage protection cover is an insurance policy that will pay off the loan in the event of death.
Having it in place is a legal requirement. Life insurance pays out a cash sum in the event of death but
is not required when taking out a mortgage.
Summary – Mortgage Protection or Life Insurance?
I can’t give you a general answer here as your personal circumstances will dictate a lot. I do have a
simple rule though when it comes to choosing Mortgage Protection or Life Insurance. If you have
financial dependents, I’d recommend getting separate life insurance cover in addition to your basic
mortgage insurance.
If you you need help with a mortgage or mortgage protection insurance then please feel free to call Mortgageine on (01) 707 9880
Thank You and Stay Safe – Stephen.
