Well hello there and welcome to the first QuoteLeader blog post. The aim of these regular little nuggets of info is to provide you, the customer, with all of the facts that you need before taking out any particular type of cover.
Today we’ll get right down to fundamentals and consider the age old question… Do I need Mortgage Protection or Life Cover?
Maybe you’re at the final stages of a mortgage application and you’ve just found out that these two types of cover even exist! I can imagine the excitement.
Firstly, we will look at Mortgage Protection and start by clearing something up….. in what seems to be an attempt to cause maximum confusion, Mortgage Protection can be referred to as any of the following…… Mortgage Insurance, Mortgage Life Insurance, Mortgage Life Cover, Decreasing Term Protection, Mortgage Protection.
Got that? Let’s move on.
These all refer to the same thing. Life Cover that is designed to cover a mortgage.
The level of cover on a Mortgage Protection policy reduces at a fixed rate so that sufficient cover is in place at all times to cover the balance of the mortgage should a claim be made. If an individual covered were to die within the term of the policy the remainder of the mortgage would be paid off. This removes the burden on the surviving individual of having to meet the mortgage repayments on their own.
A regular Life Cover policy has a fixed cover amount over a set number of years . Therefore, the main difference between these types of cover is that the cover amount reduces over time on a Mortgage Protection policy.
Importantly, both types of cover can be used for the purpose of covering your mortgage.
Where a Life Cover policy is chosen and one of the insured parties die within the term, the mortgage would be paid. After this, the remainder of the claim payment is left to that individuals estate / next of kin. This excess occurs due to the mortgage balance decreasing over time but the Life Cover amount staying unchanged throughout.
Where a Mortgage Protection policy is chosen, the reducing balance of cover means that it is less likely that there will be any significant excess cover built up within the policy over time.
As you’d expect, this is all reflected in the pricing with Mortgage Protection being considerably cheaper than Life Cover for this reason.
Regardless of which policy you take out for your mortgage, it will have to be assigned to the bank. Yes that’s right, you pay the premium and they have full control over the payout!
There are circumstances where taking out a Life Cover policy is more suitable than Mortgage Protection. For Example, where you are taking out an ‘Interest Only’ mortgage. As the balance of the mortgage is not decreasing, the bank will need a fixed cover amount on the policy.
Let’s now take a look at the cost difference:
Male aged 35, Female aged 35, both non-smokers, mortgage of €350,000 over 30 years.
Joint Mortgage Protection Policy
Joint Life Cover Policy
(Quote correct as of 28/01/2020)
So in this instance, the saving to be had by opting for the Mortgage Protection policy over the Life Cover policy is (€14.62 * 12) * 30 = €5,263.20.
By no means insignificant I’m sure you’ll agree.
It’s important to be aware that a Mortgage Protection policy is sufficient to meet the banks requirements. I generally recommend that the bare minimum of cover be assigned to the bank and additional cover be held separately. This provides the peace of mind that the mortgage would be repaid. It also ensures that your family will have the means to meet other personal expenditure apart from the mortgage. If you are single with no dependents, a Mortgage Protection policy alone will likely be sufficient without additional personal cover.
Another financial product, Mortgage Payment Protection, is often offered when signing up for a mortgage. For obvious reasons, this is sometimes confused with mortgage protection. However, mortgage payment protection will pay a portion of your loan repayment if you cannot work due to accident, illness or redundancy for up to a year. It is important to be aware of the difference. It is not a requirement to have this cover in place to get a mortgage.
Hopefully this has been of help in deciding on the most appropriate form of cover to suit your personal circumstances.
If you have cover in place currently, remember to check to ensure you’re getting value for money by running a QuoteLeader quote HERE. Feel free to give me a call on 01 539 44 50 with any questions you might have.
QuoteLeader is a trading name of Northstar Financial Planning Ltd and is regulated by the Central Bank of Ireland and is registered in Ireland under company number 635508. Registered office : The Diamond, Carndonagh, Co.Donegal.
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