Mortgage Protection Explained

In this section, we provide answers to many of the questions our customers often ask us. Our advisers are experts in finding the most suitable products for your needs, even if you've found the best deal using our mortgage protection calculator, our advisers will check to make sure that you're not paying more than you need to.


Why should I deal with Lifeinsurance.ie instead of my bank?
Unfortunately, far too many people are led to believe that they must take out their mortgage protection policy with their lender.

We will always provide you with a better quote than your lender.

We compare mortgage protection quotes from Ireland's leading Life Insurance Companies and show you exactly who is the best value and then apply additional discounts of up to 16% off the lowest quote.

When arranging a mortgage you will find that the bank will want you to meet their in house financial adviser who will advise you on mortgage protection options from one provider only.

Every day we receive phone calls from buyers who feel something might go wrong with their mortgage if they don't take out the mortgage protection policy through their lender.

In many instances our customers will have been advised that not using the bank's preferred provider could risk delaying the closing of the house purchase. We also hear stories from customers that other providers may not be secure or they will insist on medicals which will also hold up the sale.

This is all nonsense. You are under absolutely no obligation to take out a mortgage protection policy through your lender. As a consumer you have aright to place your protection policy with any provider in the market.
 
We will explain exactly what you need and what cover you should have at this stage of your life - no hard sales, just common sense advice that saves you money.

What is Mortgage Protection?
Mortgage protection insurance is a life insurance policy that is assigned to your lender and is designed to clear the balance on your mortgage in the event of death of the policy holder.
  • Premiums are fixed for the policy term.
  • The proceeds of the policy on death will go directly to the bank
  • Over time the sum assured on the policy will reduce in line with your mortgage balance.
Why is Mortgage Protection cheaper than ordinary Life Insurance?
The amount that a Mortgage protection policy pays out is equal to the balance of your mortgage.

Because your mortgage balance reduces over the term, the amount of cover is also reduced and this means that a mortgage protection policy is generally cheaper than level term cover.

For many first time buyers the difference in price between a mortgage protection policy and a term life insurance policy is surprisingly small. 

We will always provide you with a full market comparison for the cost of both options when advising on mortgage protection.
Is Mortgage Protection Insurance suitable for interest only mortgages?
A mortgage protection policy is not suitable for an interest only mortgage.

With an interest only mortgage the capital sum outstanding on the mortgage does not reduce and for this reason a term insurance policy is more suitable.

If a mortgage is in arrears and repayments are less than the conditions of the original mortgage it is likely that any mortgage protection policy in place will not be sufficient to clear the mortgage balance. In these instances the policy should be replaced by level term policy.

Lifeinsurance.ie can also provide you with a flexible  protection policy which allows you to switch between term insurance and mortgage protection..
Are there advantages in choosing a level term policy rather than Mortgage Protection insurance?

With a level term policy the amount insurer does not reduce over the term of the policy.

Please review a comparison of the two products here .

What should I consider when taking out Mortgage Protection insurance on a joint mortgage?
Mortgage protection policies are normally designed to pay out once. In the case of  joint mortgage protection  the policy will pay out on the first death.

A dual term insurance policy can be a cost effective alternative. In this type of policy the life insurer will pay out on both deaths.

For example if a couple takes out a life insurance policy for €200,000 over 30 years to be used a security for as mortgage, the following would  happen in the event of one party dying 10 years later when the mortgage balance is €120,000.
  • The life Company would clear the balance on the mortgage directly to the bank
  • The remainder of the sum assured ( €80,000 ) would be included in  to the deceased's estate
  • The remaining spouse would also continue to be insured for €200,000 for a further 20 years ( the balance remaining on the policy term)
Cohabiting couples
There are potential tax implications for cohabiting couples if the surviving party inherits their deceased partner's share of a property.

As cohabiting couples are considered strangers for inheritance tax purposes, they may have to pay 33% of the value of their partners share above €16,250 in inheritance tax.

There are certain rules that help negate this potential liability including a provision that if you have lived in the house as your primary residence for three years and continue to so for a further 6 years after the death of your partner, no inheritance will be payable.

These exemptions will not apply if at the date of the inheritance you have an interest in another residential property.

Switching mortgage protection
Many of our clients contact us to save money on existing mortgage protection polices. Quite often they are unsure what is covered in their existing policy and need advice in regard to switching to a cheaper mortgage protection policy.

There are few matters to consider:
  • Check the terms of your existing policy to see what you are covered for.
  • We will advise you on the cost of replacing the policy and the savings you will make over the policy term
  • We will also advise you on any suitable alternative facilities
  • If you wish to proceed with the switch we will arrange free cover for one month and ensure that you are not paying for two policies at the same time!
  • Please do not cancel any existing policies until your new policy has issued.
Should I take out Mortgage Protection insurance if I am over 50?
All mortgages to persons under 50 must, by law, be supported by a mortgage protection/life insurance policy.

If you are over 50 it may not be required by law, but it is likely that the lender will insist on you taking out a mortgage protection policy as part of their security requirements if the property is your home.

If it is an investment property lenders may not insist on a mortgage protection policy.

It is our view that all mortgage should be supported by underlying life policies unless the cost is prohibitive due to age or medical conditions.