Congratulations! Your bank has approved your mortgage application, but now they’ve told you that you need to take out a Mortgage Protection policy.
So, what exactly is Mortgage Protection?
Mortgage protection, also called mortgage life insurance, is a form of life insurance that’s designed to pay off the outstanding balance on your mortgage in the event of your death.
Your bank will require you to have a mortgage protection policy in place before allowing you to draw down your mortgage.
However, you do not need to take out Mortgage Protection with your mortgage provider. You are free to shop around for the best deal.
If you’re buying a property by yourself, you’ll take out a single life policy. If you’re buying with your partner, you’ll need a joint or dual life policy, where two people are insured under the one plan.
The policy runs for the same length as your mortgage and ensures that, if the worst were to happen and you passed away before your mortgage had been fully repaid, a lump sum would be paid out to cover the remaining balance.
Example:
Let’s say your mortgage is for €200,000, which you’re repaying over 30 years.
You would need a policy with cover of €200,000 over 30 years.
With mortgage protection the amount you’re insured for decreases each year to broadly match what’s left on your mortgage.
If you were to die in year one, almost €200,000 would be paid out, as that would be the amount outstanding on your mortgage. If you were to die in year 15, around €141,117 would be paid out.
However, if you died towards the very end of your mortgage, maybe only a few thousand euro would be paid out, as you would have paid off the majority of your mortgage by that point.
It is for this reason that mortgage protection tends to be cheaper than other forms of life insurance.
It’s also important to note that Mortgage Protection does not cover your monthly repayments if you cannot work due to redundancy, sickness or disability.
What is the Difference Between Mortgage Protection and Life Insurance?
As described above, with a mortgage protection policy the level of cover reduces each year.
With a life insurance policy the level of cover remains constant, and can even increase each year to help keep up with inflation. It is for this reason that life insurance usually costs more than mortgage protection.
Who Needs to Take Out Mortgage Protection?
In general, everyone who takes out a mortgage in Ireland must put in place mortgage protection, as your lender won’t allow you to officially draw down your mortgage until you are under cover.
Many prospective home buyers are often unaware of this requirement and scramble at the last minute to get a policy in place so that they can move into their new home.
So, if you’re looking to buy your first home, our advice is to arrange cover as early as possible in your mortgage journey.
Are There Any Exceptions?
There are some instances where mortgage protection may not be required, such as:
- You’re over 50.
- You’re buying an investment or buy-to-let property as opposed to your own home.
- You cannot get mortgage protection due to health issues, or you can only get it at a much higher premium than normal.
- You already have enough life insurance to pay off your mortgage if you die. This might be the case if you already have a life insurance policy in place, or if you have death-in-service benefits provided by your employer.
In these instances, it is at the discretion of the lender as to whether or not they will require you to take out mortgage protection.
Policy Assignment
When you purchase mortgage protection insurance, it’s important to know that the policy will be assigned to your bank or lender. In other words, they become the owner of your insurance plan.
In the event of your death, your bank or lender is paid first and any balance remaining is then paid to your beneficiary.
Once your policy has been issued, your insurer will send what’s called a “Confirmation of Assignment” letter to your bank. This effectively means that the cheque for your mortgage can then be issued and you can get the keys to your new home.
Do I Need to Undergo a Medical Examination to Take Out Mortgage Protection?
If you’re in fairly good health then the answer is usually no.
However, if you have a history of illness, are over a certain age, or are applying for a large amount of cover then you may need to undergo a medical examination or complete an over-the-phone medical questionnaire, which will be organised and paid for by the life insurance company.
The life insurance company may also send a medical questionnaire to your doctor to be completed.
How Much Does Mortgage Protection Cost?
Ultimately, the cost of your policy will depend on several things:
- The amount of cover you choose
- The number of lives covered under the policy
- The term of the policy
- Your age
- Whether or not you smoke
- Your health, occupation and pastimes
- If you choose to add Specified Serious Illness Cover to the policy or not
How Do I Apply?
The first step is to contact us for a quote.
You can call us on 064 6637393, email info@gallivanfinancial.ie or call into our office at Upper High Street, Killarney.
Once we’ve found the right policy for you, we will assist you in completing your mortgage protection insurance application.