So, you’ve saved a deposit, got financially organized, applied for a mortgage, navigated and negotiated your property purchase and you now need mortgage protection insurance. Congratulations!
What is it? Mortgage protection also known as decreasing term insurance clears the outstanding mortgage balance with the bank, in the event of the borrower’s death during the mortgage term.
Why do I need it? Mortgage protection is a bank requirement prior to drawing down mortgage funds. It is to ensure the bank still receives repayment of the outstanding mortgage balance in the event of the borrower’s death. The level of cover tracks the outstanding balance and reduces in line with our mortgage repayments. The bank requires sufficient life insurance at a minimum before we can draw down mortgage funds. The bank will require the policy be assigned to them for the duration of the mortgage. While the bank wants to mitigate the risk of the borrower’s death it is also beneficial to the borrower and their family knowing that in the event of death those left behind will not be burdened with ongoing mortgage repayments.
When do I need it? Mortgage protection should be applied for roughly four weeks prior to drawing down funds. This is to allow sufficient time for the application to be processed and reviewed by underwriting. Underwriting is tasked with assessing the risk associated with an applicant’s existing medical conditions. A quoted monthly premium can be increased if underwriting determine there is an added risk to insuring the borrower.
Where do I get it? There are five providers in Ireland: Aviva, Irish Life, New Ireland, Royal London and Zurich. When applying for a mortgage the bank will offer you mortgage protection. Banks and other third parties usually work in partnership or joint venture with one of the five life companies mentioned above. For example, Bank of Ireland are tied to New Ireland, Allied Irish Bank are tied to Irish Life and Zurich are tied to VHI. Therefore, banks and third parties are restricted to recommending one providers policies as they are tied to one insurer. At the Money Mentor we conduct a fair market analysis across all the providers and recommend the most suitable option for you.
How does it work? We will need your full name, date of birth, gender, smoking status, mortgage amount or outstanding balance and term for the borrower or borrowers. The mortgage protection policy monthly premium will be determined by your age, civil status, smoking status, loan amount, term and medical history. Even if you already have mortgage protection it is a good idea to request a fair market analysis to see if you can save money through a more competitively priced monthly premium. A monthly saving of €10 may not seem like much but over 20 years it equates to a saving of €2,400. Don’t cancel your existing policy until you have either got a suitable replacement in place or no longer have an outstanding mortgage balance.
Anything else I need to know? One of the biggest oversights we see with mortgage protection insurance is that if you use a bank, their policies can restrict portability of your policy if deciding to switch to another mortgage provider in the future. The bank may offer add on’s to your mortgage protection policy such as serious illness cover. This means that if you are diagnosed with a serious illness as prescribed in the policies terms and conditions the insurance company will pay out a lump sum to the bank. This is an optional extra and will increase the monthly premium significantly. It is usually a good idea to keep an insurance policy that will be assigned to the bank to life cover only. We recommend a separate assessment of your personal insurance needs be completed.
As with all insurance recommendations it should be reviewed in the context of your existing insurance benefits through work or held personally. It is an ideal opportunity to review the risks to your human capital. Human capital is your ability to earn an income up until retirement or financial independence. Personal insurance is wealth preservation or wealth replacement cover.
Believe it or not there are a plethora of options and features when it comes to your mortgage protection policy. It helps to have a competent professional provide you with the options, recommend the most suitable option and explain why this is the case. The added value comes from the best price, policy cover and features.
In the event you are unable to obtain mortgage protection due to an underlying medical condition and you are part of a life insurance group scheme at work, investigate what can be done to leverage this work benefit.
The Competition and Consumer Protection Commission provide similar insights on mortgage protection insurance here: https://www.ccpc.ie/consumers/money/insurance/mortgage-protection-insurance/
If you like what you are reading, we also share our knowledge on our podcast, available on Apple and Spotify. The episode on Human Insurance can be found here: https://money-mentor.ie/podcast
If you would like us to search the market and provide you with a competitive quote, please get in touch: firstname.lastname@example.org
The Money Mentor Team