Mortgage Protection insurance

Mortgage protection insurance

Mortgage protection insurance is an insurance policy that pays off your mortgage if you or another policy holder dies during the term of the mortgage. If you have a joint mortgage, both people need mortgage protection insurance. 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. LABrokers.ie offers free online mortgage protection quotes here https://webquotes.labrokers.ie/WebQuotesMP.aspx

By law, your lender must ensure you have this cover in place when you take out a mortgage. However, a lender may agree to give you a mortgage without this cover if:

Sometimes due to health issues people may find they are refused mortgage protection or a decision to consider an application is postponed. In this case you should go back to your lender and ask if they can waive the requirement of you having to have cover. A requirement may be waived if:

You are buying an investment property
You are over 50 years old
You cannot get this insurance
You have a life insurance in place already.

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. For a quote see: https://webquotes.labrokers.ie/WebQuotesMP.aspx

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. For a quote please see: https://www.labrokers.ie/life-insurance/

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 but also 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. LABrokers does not quote for this type of policy because it is so difficult to compare providers offering serious illness cover based on price alone. They all have different options, a different range of illness, but more importantly they all have different actual definitions of what they consider a serious illness to be. This makes comparing providers on a like for like basis so difficult.

Life Insurance policy: You can use an existing life insurance policy as long as 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. For a quote for this type of policy please see https://www.labrokers.ie/life-insurance/

Where to get mortgage protection insurance

Mortgage lenders:

Most mortgage lenders offer to arrange mortgage protection insurance for you when you apply for a mortgage.
It may be convenient for you to arrange your mortgage protection insurance through your lender as you can pay your premium as part of your mortgage repayments. However, you should always shop around for a policy.
Be aware that if you buy a policy through your lender, you may be under the lender’s group policy. This may restrict you if you want to switch your mortgage later on.

Broker:

You may wish to use a mortgage broker to arrange your mortgage protection insurance. For a quote see https://webquotes.labrokers.ie/WebQuotesMP.aspx
Brokers usually compare a number of policies from different providers to make sure that you get the best deal on your policy.
Brokers will also make sure you are fully aware of any differences in cover between each option.

Existing life insurance policy:

You can use an existing life insurance policy for mortgage protection, as long as the amount you are insured for is at least equal to the value of your mortgage and it runs for the same term.
To do this, you would have to ‘assign’ the policy to your lender. This means you would agree to give the life insurance benefit to your lender to pay off your mortgage if you die during the term.
Any policy benefit left over after paying off the mortgage goes to your dependants. If your life insurance benefit is used up to pay off your mortgage when you die, there will be no cash lump sum available for your dependants.

If you want to have a cash lump sum available for your dependants you can either take out a separate mortgage protection policy or increase the level of cover on your existing life policy.

TOP TIP

Be sure to shop around for mortgage protection insurance as you may get better value quotes from other companies/brokers. Having a policy that is not from your lender may also make it easier for you to switch mortgage in the future. Your lender cannot refuse you a mortgage because you don’t take their mortgage insurance. Quote see https://webquotes.labrokers.ie/WebQuotesMP.aspx

What happens to my policy if I change my mortgage?

If you are changing your mortgage there are a number of things to consider, depending on whether you are topping up or extending your mortgage, switching or paying the mortgage off early.

TOP TIP

Make sure you have another policy in place before cancelling your existing policy.

Topping up your mortgage

If you are topping up your mortgage you will need to make sure that your policy meets the new value of your mortgage.

You could get a new mortgage protection policy for the total amount of your new mortgage, or just for the top-up amount. Quote for this type of policy here: https://webquotes.labrokers.ie/WebQuotesMP.aspx
Compare the costs and benefits of both options. It may be cheaper to keep your original mortgage protection policy and then buy a second policy for the top-up amount. Check the cost of cancelling the original policy and replacing it with a policy for the full amount of your new mortgage.
Whether you are topping up your mortgage or extending the term and need to get a new policy, you may find that your premium is higher than the last time you took out cover. This is because you are older and your age affects your premium. However, if you have given up smoking, or if rates have come down since the last time you applied for cover, you may be able to get cheaper cover.

Switching your mortgage

Your options depend on whether you have your own policy or a group policy through your lender.

If you have your own policy, you can simply assign it to your new lender. The premium and level of cover will be the same as before, as long as the amount you borrow and the term of your mortgage does not change.
If you have a policy through your lender’s group scheme, your lender will cancel the policy when you switch your mortgage.
If you have to get a new policy it may cost you more, or it may be cheaper for a quote see: If you are not in good health, you will have to pay a higher premium or you may not be able to get cover at all.
Before you switch your mortgage, make sure that you can get mortgage protection insurance if your current mortgage protection is through your lender’s scheme.

Paying off your mortgage early

You generally have two options if you are in a position to pay off your mortgage early. You can cancel your mortgage protection cover and pay no more, or, keep the policy and continue paying until the original end date. You might choose to keep the policy and continue to pay if you have a policy that covers more than just your mortgage, for example life insurance or level term cover.

Cancelling your mortgage protection

If you decide to cancel the mortgage protection cover, always check with the insurance company that the policy has been cancelled. If the policy is not cancelled correctly, payments may still be taken from your account.
If the policy has been arranged through your lender, your lender will cancel the policy on your behalf but you should check to make sure this has been done.
If the policy has not been cancelled by your lender, ask the insurance company what your lender needs to do to make sure the policy is cancelled and no more payments are taken from you.
Make sure that if you have been paying by direct debit, that you cancel the direct debit in writing.

Keeping the policy

If you decide to keep paying into the policy after paying off the mortgage, you will still be covered by the policy in full up until its expiry.
If you you die before the policy finishes, it would no longer need to be used to clear your mortgage. So any benefit would be paid to your dependants/estate.

Information: https://www.ccpc.ie/consumers/money/insurance/mortgage-protection-insurance/