Mortgage protection is a decreasing life assurance policy. Its purpose is to protect your mortgage provider’s money should you die, before you have paid back the full amount of your mortgage loan.
The reason why it is called a ‘decreasing’ policy is because as time goes by and you repay more and more of your mortgage the amount of outstanding mortgage covered by the policy ‘decreases’. But… and this is important … although the amount of money that your policy covers gets smaller in the fullness of time the actual amount of money that you pay for this policy is fixed for the entire duration of the policy.
This fixed amount of repayment for “the entire duration of the policy” can be a very valuable ‘plus factor’ for most policyholders because it means that regardless of your age and health the insurance company cannot ask you to pay a cent more. As John Geraghty pointed out to me “Mortgage protection policies are usually the cheapest form of life insurance available. And the price you are quoted by an insurance company when you buy a mortgage protection policy is dictated by your age, by whether you smoke or not, by whether you are male or female, by the amount of cover you need and, of course, by the number of years that the policy is required for.”
John Geraghty goes on to explain that although some Mortgage Protection plans available on the market include a ‘review’ clause which means that the insurance company can ask you to pay more for your cover at some date in the future, all Mortgage Protection Insurance policies that are quoted by his company, LABrokers.ie, have guaranteed fixed repayment premiums throughout the entire duration of the policy A mortgage lender will not advance a loan unless it is protected by a suitable Mortgage Protection. And while many people are happy to take out their Mortgage Protection cover in the most convenient way possible, by simply filling in the mortgage protection part loan application form, you don’t have to buy your mortgage protection policy from your mortgage lender.
The Consumer Credit Act, 1995, gives you the right to choose your own Mortgage Protection Insurance policy. And one of the big advantages of having your own independent mortgage protection policy is that it gives you far more flexibility.
This flexibility is important if, at a later stage in your life, you want to switch your mortgage to another lender.
If this happens you can simply transfer the ownership of the proceeds of your existing policy to your new lender and
… your regular premiums remain the same and your amount of cover remains the same.
Whereas in the same situation if you have a mortgage protection policy taken out through your existing lender, they will simply cancel the policy when you transfer your mortgage to another lender.
So, an “older you” will have to apply for cover again. And because you will be older, it will usually cost you more. And, if you are not in good health, you may have to pay an even higher premium, or you may not be able to get cover at all. Remember, your mortgage repayments will probably be with you for most of your life so your mortgage protection plan will probably have to protect you for most of your life. That’s why John Geraghty strongly advices readers to shop around at the outset when you are looking for the best mortgage protection policy for your requirements.
John also points out: “it pays to use a professional insurance broker like LABrokers.ie to do the shopping around for you to make sure that you get the best possible protection at the best possible prices for your own individual circumstances and requirements.
When I asked John how does a discount broker like LABrokers.ie get paid he explains that “when we quote we only give our client the cheapest insurer. The insurance company that we quote accepts the cover and guarantees the terms and conditions and the premium for the full duration of the policy.”
The insurer pays commission based on the term of years the client requests on the application form. The commission is not paid each year but upfront.
In the first year of the policy we offer a discount from the commission we receive from the insurer for setting up the policy.
Overall, taking everything into consideration, we offer our clients the best possible protection at the best possible price.”
And when I enquired does this mean that the price agreed at the outset is 100% guaranteed, John assures me that all mortgage protection policies set up by LABrokers.ie are GUARANTEED!
There is no get-out clause for the insurance company (except for what is called ‘non-disclosure’ – which is where someone didn’t tell the truth on their application form or where someone tried to mislead the company etc.).
Because the insurance company is locked into providing guaranteed cover at guaranteed price for a guaranteed period they do not invite renewal (like say Car and House insurance policies) as, technically speaking, a mortgage protection policy does not renew.
“The Central Bank does not see justification for anyone switching from an existing policy into a replacement policy which is more expensive than what they currently have for the same level of benefits.
If you are changing your loan by reducing the term or paying off a lump sum then in most cases an insurer should be able to facilitate you changing their existing policy to suit the revised requirements without having to take out a new policy.
In cases where an existing policy cannot be amended , or where the base premium (i.e. the non discounted amount of your new policy is cheaper than what your current policy cost you, then talk to LABrokers® on 01 2810577, remember we work for you and in such cases there may indeed be justification in taking out a new policy and discounting it for you.”
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