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.
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:
- You are buying an investment property
- You are over 50 years old
- You cannot get this insurance, for example due to a current serious illness, health issue or dangerous occupation
- You have a life insurance policy in place already
Exemptions are made on a case by case basis and even if you fall within one of the above exemptions the lender may make it a condition of the mortgage that you have mortgage protection in place before they approve your mortgage. It is important to know the financial risk of having no cover in place before signing up to the mortgage. In the event of death, there will be no insurance policy to pay off the mortgage so the joint owner or your beneficiaries will have to continue repaying the mortgage.
Remember this type of insurance does not cover your repayments if you can’t work because of redundancy, sickness or disability. For this type of cover, you need to consider other types of insurance such as, bill cover, wage protector or income protection insurance.
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.
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.
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. Serious illnesses typically covered include, but not limited to, stroke, heart attack and some types of cancer. This will be more expensive than other types of cover.
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 estate.
Where to get mortgage protection insurance
- 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. It is important when shopping around that you compare both cover and price. A policy may appear cheaper on the surface but not have as much cover as another, slightly more expensive one.
- 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.
- You may wish to use a mortgage broker to arrange your mortgage protection insurance.
- Brokers usually compare a number of policies from different providers to make sure that you get the policy to suit your current needs and also the best deal.
- Brokers will also make sure you are fully aware of any differences in cover between each option.
- Brokers may charge a fee for their services or receive a commission from the first year’s premium paid on the policy.
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.
Be sure to shop around for mortgage protection insurance as you may get better value quotes from other companies/brokers. Make sure that you are shopping around for the most suitable level of cover for you.
The cheapest quote may not provide the most suitable cover. 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.
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.
- 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
- When switching your mortgage you will assign your mortgage protection to the 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 either the amount you borrow or the terms of the mortgage change, you may need to increase your mortgage protection cover to ensure that you are still fully protected. You may be able to increase the cover on your existing policy. If this is not possible and you need to take out a new policy, it may cost more as you are now older and you may not get cover at all if you are not in good health.
- If you have a policy through your lender’s group scheme, your lender will cancel the policy when you switch your mortgage. Before you switch your mortgage, make sure that you can get mortgage protection insurance as it will cost more as you are older and if you are not in good health you may not get cover at all.
If you take out a mortgage protection policy and then change your mind, you can cancel it within the first 30 days and you will get a full refund.
However, the money you are refunded may not be the full amount you have paid as any fees and charges, such as an administration fee, may have been deducted. You should check the terms and conditions of your insurance policy to see what charges may be deducted.
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 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.
- If you have a group policy with your lender, they may close off the policy once the mortgage is cleared. There may be no option to keep the policy open.
Making a mortgage protection claim
Making a mortgage protection claim involves some paperwork. There are a number of basic steps you should follow:
- Contact your insurer or broker:you will need to notify your insurer or broker that the policyholder or one of the policyholders in the case of a joint life policy, is deceased. As a mortgage protection policy is assigned to your lender, usually your bank, the balance on the policy will be paid directly to the lender.
- Complete a claims form:you will need to submit a claims form to your insurer when making a claim. Remember to complete the forms as accurately as possible to avoid delays or refusal or your claim. If you are unsure of any information requested on the form, contact the insurer or broker.
- Get your paperwork in order:your insurer may ask for documentation such as the original policy document, certified copies of the death certificate and will if available. The insurer or broker will advise what documentation is required during the initial contact.
Frequently Asked Questions
What is Mortgage Protection?
Mortgage protection is a form of life insurance that will pay off your mortgage in the event of your death before your mortgage is fully repaid. If you are looking to take out a mortgage, you will need a mortgage protection policy in place before you can draw down the mortgage loan. It is compulsory for all residential mortgage holders in Ireland to take out mortgage protection to protect both themselves and their mortgage lender.
When should return my mortgage protection application form?
If you’re in good health then 4 weeks prior to your expected mortgage loan drawdown, or if simply switching to save, then apply immediately.
If you have health issues the process may take longer so best to apply 6-8 weeks in advance of the start date and to call us to discuss first.
When should I start my mortgage protection policy?
If a new mortgage loan your policy start date should match the date of loan drawdown. You will be normally told this about 2 weeks beforehand, so you can postdate the release of your mortgage protection policy documents.
If replacing an existing mortgage protection policy to save money, then you should start your new policy just before the debit is next falling due on your existing policy.
What’s the difference between mortgage protection and life insurance?
Life insurance pays out a lump sum should you die during the term of the policy. This sum remains constant or with optional indexation can increase each year to help keep up with inflation.
With mortgage protection, the lump sum decreases each year to broadly match the outstanding balance on your mortgage. This makes mortgage protection is decreasing term life insurance much cheaper than term than standard level term life insurance.
How much does mortgage protection cost?
The cost of mortgage protection depends on your cover level, your age, and your smoker status, although if you have a long-term health condition this can sometimes also affect the cost dependent on its nature and severity.
How do I apply for mortgage protection insurance?
Run your quote and return the application form, which is automatically emailed to you. If you don’t have a printer don’t worry you can complete your application on the screen and then get set up for digital signatures.
Will I have to do a medical for my mortgage protection?
No, it is very rare that the life insurance company would ask for a medical, this only happens for very large cover amounts and for older applicants on occasion. Sometimes a GP report can be requested if you disclose certain health conditions, but typically and especially if you’re young, fit, and healthy there is no additional health-related requirements post application return.
How long does it take to get my mortgage protection policy?
If you have no health issues, you can have your policy documents within 24 hours from your application return. You can choose to apply and hold for a later start date and hold your quote for up to 3 months or your next birthday whichever comes sooner.
What is joint life mortgage protection?
This is an insurance policy that can be taken out to cover a couple or 2 individuals. In the unfortunate event that one individual dies, the insurance company will pay off the balance outstanding on your mortgage and the policy ends.
What is dual life mortgage protection?
Dual Life mortgage covers 2 people but pays out separately on each. So, if a death claim occurs the mortgage gets paid off, but the policy can still be maintained on the second person. In the tragic event that both people died together, the policy would be payout double the life cover level.
Should I add Serious Illness Cover to my quote?
The answer is that’s up to you as your mortgage lender can only insist on a policy with life cover, but we would recommend considering this additional protection if affordable and especially if you don’t have any other Serious Illness cover already in place.
Should I include a Conversion Option?
A Conversion Option allows you to later extend your policy cover term and to increase your “life cover” within the policy’s guaranteed insurability limits. It also allows you to convert from a reducing cover Mortgage Protection policy to a level term Life Insurance policy if you fall seriously ill with the option to extend your cover term in addition.
Any changes made through a conversion option are free from fresh evidence of health, so it protects you against a decline in your health affecting your long-term costs no matter how your mortgage needs may change into the future.
What if I want to alter my mortgage down the line?
All of the mortgage protection policies we quote offer “guaranteed insurability” to allow you to make changes to your policy in line with increased borrowing and without the need to complete a fresh mortgage protection application form. However, this does not allow you to extend the term and restricts you to a maximum of your original loan amount.
If you want to future proof your cover against a change in health, term and cover the best thing to do is to add a “Conversion Option”.
Is it not easier to use my bank to provide my mortgage protection?
By law, you’re under no obligation to buy mortgage protection from your bank. A bank can’t refuse you a mortgage if you decide to get mortgage protection elsewhere. So, you’re free to shop around to find the best value protection for you!
Most people now realise that they can save a lot of money by not choosing their bank’s mortgage protection policy and that taking out insurance through the bank is not a condition of the loan. But, some people still think that it might be faster or easier to accept their bank’s mortgage protection quote and go with their recommended insurer.
The fact is, however, choosing an online broker is the fastest way of quoting, applying for and receiving your mortgage protection insurance policy and this is on top of making substantial cost savings to boot!
Does the cost decrease as my cover decreases?
No. The price already takes into account the fact that your cover level will decrease over the term of your mortgage; otherwise, it would be the same cost as level cover life insurance! The premium is a fixed price for the full term of your mortgage.
At what rate will my cover decrease?
Your cover will decrease based on an assumed mortgage interest rate of 6% which is the industry standard for all mortgage protection quotes. If your actual interest rate is lower than 6% which most everybody’s is right now, this simply remains that a small surplus of life cover will go to your estate once the mortgage is cleared.
How long does mortgage protection bank assignment take?
It should generally take a maximum of 5 working days dependent on the volume of requests with the life insurance company at any one time. We, therefore, recommend that as soon as you have a mortgage drawdown date to complete and return your Notice of Assignment.
What happens if I decide to switch mortgage provider down the road?
If you decide to switch mortgage providers, you don’t need to take out a new policy. You can simply reassign your existing policy to your new lender. Your premium and level of cover will remain the exact same, as long as the amount you borrow and the term of your mortgage haven’t changed.