What is Mortgage Protection Life Insurance?
We’re sticking with the protection side of things this week and keeping with the basics.
What exactly is mortgage protection?
What does it cover?
How does it link to my mortgage?
Let’s keep it simple.
As the name suggests, we’ll focus purely on mortgage protection insurance.
If you have a mortgage or are planning to buy, you need to read this.
Do you currently have an old mortgage protection policy?
This may trigger you to review it.
What is Mortgage Protection Life Insurance?
It’s a life insurance policy that pays a sum on the death of an insured person.
It can also carry lump sum specified illness cover.
How does Mortgage Protection Insurance work?
At the outset of the policy, a sum insured is chosen.
This is the amount of your mortgage.
Over the duration of the policy, the sum insured decreases.
As does your mortgage as you make repayments.
Should you pass away, the mortgage protection should carry a sum insured at that point similar to what is outstanding on the mortgage.
Therefore, the mortgage is clear and the deceased’s dependants have no debt to worry about.
Fun Fact!
There is actually no product called Mortgage Protection.
The product is technically called ‘Decreasing Term Assurance’.
Basically, life insurance that decreases over the term.
Simply, mortgage protection is just a commonly used label.
Because of this it has become known as the product.
Specified Serious Illness Cover
Like term life insurance, a policy holder can build in serious specified illness cover.
This is where a tax-free lump sum becomes payable if an insured life meets a serious specified illness definition within the policy.
For info, the top claim reasons for specified illness in 2021 were cardiac and cancer for both male and female.*
The youngest male claimant in 2021 was aged 33 and the youngest female aged 36.*
Rider Benefits
As with term life insurance, It should be noted, that these are essentially ‘add ons’, some optional, some included.
The rider benefits provided can vary per provider.
Different providers provide different ‘Rider Benefits’.
Benefits like Personal Accident cover, Hospital Cash, Surgical Cash & Cancer Cover.
Additional services provided can also include where you can get second medical opinions.
Dual Life or Joint Life
This is one to watch.
Some providers offer dual life.
Dual life is where two lives are on a policy but insured completely separately.
Let us take Mr Husband and Mrs Wife.
They are covered for €250,000.
Dual life cover means they are both insured for €250,000 each.
So if an event happens that kills both of them, the payout is €250,000.
If Mr Husband passes away, the benefit pays and the policy continues on Mrs Wife.
Essentially double cover.
Importantly, some providers provide this at no extra cost.
How much cover and for how long do I need it?
How much cover you need is dependent on your mortgage.
As is the duration you require it for.
The level of cover you require and the term required should match your mortgage..
Do I need mortgage protection?
Yes.
Mortgage protection is compulsory with your bank to draw down your mortgage.
Your bank wants to know that should you pass away, they will be paid.
On the other hand, for rental property, you generally don’t need it!
Ah, but I will just cancel it when I have drawn down the mortgage!
Technically you could.
But this would be very silly.
If you were to pass away your dependents still have to clear the mortgage.
Besides, mortgage protection is generally the cheapest form of life cover so it’s easy to meet the cost.
Do I need to take it with my bank?
No, you don’t.
Furthermore, a lot of people go wrong here.
Your bank will lead you to believe you do.
However, what they don’t tell you is they are tied to one provider for this cover.
They can’t research the market and there are better decreasing term assurance/mortgage protection policies available on the market than what they can provide.
What happens if I die and the level of cover is higher than my mortgage?
This can happen as your mortgage can decrease at a faster rate than the cover.
If this happens, your bank will take what is needed to clear the mortgage and any surplus is sent to your estate.
Should it be assigned?
Yes, your mortgage protection cover should be assigned to your lender.
This means that if you pass away, they essentially get first dibs on the payout.
They take what they need to clear your debt and any surplus is sent to your estate.
Mortgage Protection (Decreasing) Cover or Level term Cover?
You do have the option of taking fixed term life cover and not decreasing cover.
Nevertheless, it’s our recommendation to keep them seperate.
Firstly, mortgage protection/decreasing for the mortgage.
Secondly, term life insurance for your family’s financial protection.
I’ve cleared my mortgage, should I keep it?
You have options, generally two.
Let it lapse.
Or keep paying it.
What should you do?
This is more relevant to your individual circumstances at that time.
Generally speaking, the premiums are low and maintain a level of life cover to which your family would benefit.
Alternatively, you could let it lapse and direct the premium elsewhere like a pension and get tax relief on it.
Summary
The concept of mortgage protection is simple.
Sum insured and term matches the mortgage.
However, the range of providers complicates it.
Rider benefits, serious illness, joint life, dual life etc etc.
It’s not just a case of running a quote and voila.
How we help
At Fortitude Financial Planning, we review all decreasing term assurance providers and products.
As a result we know what is the best product and why.
Are you a first time buyer looking for mortgage protection?
Maybe your just moving house?
Furthermore you may just have an existing mortgage protection policy in place.
Get in touch
Drop me an email, francis@fortitudefp.ie or request a callback.
You can also give me a call on 086 0080 756 or access our diary here and book a call at your convenience.
We will discuss your options and costs and get you the most appropriate cover.
Why not visit our insights.
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Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
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