Mortgage Protection

What is Mortgage Protection?

Mortgage protection insurance is a life insurance policy that pays off your mortgage if you or your partner die during the term of the mortgage. It runs for the same length of time as your mortgage. So, if you take out a mortgage over 20 years, your mortgage protection insurance must also be in place for 20 years. If you die during the term, your insurance company pays the policy benefit directly to your mortgage lender. Your lender uses the amount needed to pay off the mortgage. If there is any money left over, they will pass it to your estate. You can change insurer during the term of your mortgage if you find better value elsewhere.

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Mortgage Protection Exceptions

By law, your lender must guarantee that you have this cover before taking out a mortgage. However, your lender may allow you to take out a mortgage without having mortgage protection insurance if:

You are buying an investment property
Over 50 years old
You cannot get this insurance
You have a life insurance in place already. If you have an existing life insurance policy you can use it provided it is not already pledged to cover another loan or mortgage and it provides enough cover

This type of insurance does not cover your repayments if you cannot work due to redundancy, sickness or disability. This type of cover can be got from other types of insurance such as income protection, serious illness or payment protection.

Types of Mortgage Protection

Reducing Term Cover

As you pay more off your mortgage, the amount that the policy covers reduces in line with the outstanding balance of your mortgage. Under normal circumstances the policy will end once the mortgage is paid off. It is the most common and the cheapest form of mortgage protection. Generally, your premium does not change, although the level of cover reduces.

Serious Illness

If you wish to, you can add serious illness cover to your mortgage protection policy. This means your mortgage will be cleared not only if you die. It also includes if you are diagnosed with, and recover from, a serious illness that is covered by your policy. This will be more expensive than other types of cover.

Level Term policy

The amount you are insured for and the premium you pay remains level. This gives you the same amount of cover throughout the term of the mortgage. If you die before your mortgage is paid off, the insurance company will pay out the original insured amount. This will pay off the mortgage and any remaining balance will go to your estate.

Life Insurance policy

You can use an existing life insurance policy provided it is not already pledged or assigned to cover another loan or mortgage and it provides enough cover. Additionally, if there is a balance remaining after the mortgage is clear, this will go to your dependants as a tax-free lump sum.

Mortgage Protection Frequently Asked Questions

What is the cost of Mortgage Protection?

The cost is on an individual basis and is based on the following:

Amount of cover taken out (normally the mortgage sum affected).
Term (fixed for same term as the mortgage).
Age.
Gender.
Smoker / Non-Smoker.
General state of health.

Who can be covered?

All plans are available on a Single Life and Joint Life basis. The Single Life basis covers one person. The Joint Life basis covers two people, with the benefit being paid on first to die only. The premium payment shown on your quote is the total you pay

How much cover do I need?

For new mortgages, you need to cover the amount you are borrowing over the term of your mortgage, i.e. if you are borrowing €250,000 over 25 years; then you will need cover for €250,000 over 25 years.

For an existing mortgage, you will need to ensure that you have covered the current outstanding balance on your mortgage for the remaining term of your mortgage. You can get this information from your mortgage provider. They will send you a statement every 12 or 6 months outlining the remaining balance on your mortgage. If you do not have this, just contact your mortgage provider and they will advise the amount outstanding and the remaining term.