When you buy a new home, you need mortgage protection insurance. It’s the law and there’s no getting away from it. First time buyers in Ireland often get a shock when told they need a mortgage protection policy, as it’s yet another cost when least wanted. There is a solid reason for mortgage protection insurance, though a not very pleasant one. If you die during the life of your mortgage the policy will pay the balance due. Not leaving your family in dire financial straits and without a home on your death is why you need mortgage protection insurance.

What does mortgage protection insurance do?

A mortgage is the biggest financial undertaking of most peoples lives. You will never take on so much debt again but the benefits are huge. You and your family have a home. They have the security of a roof over their heads and a place to build their memories. What you do not want is for your loved ones to lose their home and unfortunately your death can trigger the process.

A home is usually the most valuable part of a deceased’s estate. Your estate is all the property you own when you pass away, such as a car, house, cash and savings. If there is an outstanding amount left on the mortgage it will need to be paid. When the family or loved one needs to clear the balance due, your mortgage protection insurance will cover the costs. For many families triggering the policy is the only positive during some very tough times.

When the mortgage holder passes away the bank will want the monthly premiums kept up to date. A default on a mortgage is an immediate red light to bank. Relatives will want to keep the house and mortgage protection insurance policy is the obvious answer. With the correct mortgage protection cover the outstanding balance is cleared and titles goes the spouse or next of kin.

Life insurance is not mortgage protection

You mortgage provider will try to sell you a life insurance policy along with your mortgage. For any buyer but particularly a first-time buyer there can be a lot going on at the same time. You are being offered advice and policies which may or may not be suitable and often borrowers agree for peace of mind alone. It is never a good idea to take on extra expense just to keep your bank happy.

There are many benefits to life insurance such as a lump sum for loved ones or help with awkward expenses upon your death. One major benefit which your life insurance policy may not cover is mortgage protection. Even if it does you may find dreaded terms and conditions that make it impossible to access any payout. Independent advice will steer you in the right direction and towards a mortgage protection policy which is tailored to your needs.

Is serious illness cover not an answer?

Serious illness cover is something you should have but it is not the same as mortgage protection insurance. When you fall ill and cannot work for a few months or more, then serious illness cover is of huge benefit. It will give you the peace of mind at a difficult time that your mortgage is safe but only for a limited period. If you do not recover, the existing policy could cease to cover your mortgage repayments and leave your home loan in trouble. A policy could also have specified illness cover for when needed but may not be the best answer to an outstanding mortgage.

Adding serious illness cover to a policy

You can add serious illness cover to your protection insurance and it will pay out if you suffer a serious illness but recover. It will also, of course pay out in case of your death. We all think it will never happen to us life happens and you need to be prepared for everything.

You need comprehensive cover without any ifs or buts, which provides full mortgage protection. If the outstanding mortgage balance is not protected the bank will look at taking the house. Again mortgage protection insurance is the only sure way to protect your home, and family, when you are gone.

Different mortgage protection policy benefits

There are a few different types of mortgage protection insurance each with their own benefits. In Ireland two common and popular ones are decreasing term cover and decreasing cover. They may sound and look similar but have a couple of key differences which you should note.

What does decreasing term cover mean?

With a decreasing term cover policy your repayments stay the same for the term of the mortgage but the sum insured decreases over the years. When the mortgage protection policy is activated it clears the outstanding balance only.

How about decreasing cover?

The difference between the two types of mortgage protection is subtle. A decreasing cover policy keeps the monthly premiums the same but crucially also keeps the sum insured the same too. A huge benefit here is that if anything happens to you there is an extra lump sum for any relatives to enjoy. You may pay a higher monthly premium but if you can afford it the cash lump sum your relatives receive is a nice bonus

Ask your financial broker for sound advice on which policy may suit you better. A lower policy premium sounds nice when taking out mortgage protection and money is tight. Knowing that you are leaving the family a bit extra, along with the home, is worth considering.

Mortgage protection insurance and your bank

As sure as anything in life your bank will be very keen for you to take a mortgage protection insurance policy with them. Your mortgage provider may not be an unbiased friend in this situation and you should look for independent advice. They will tell you that the Central Bank insists on mortgage protection cover but they will not tell you you can get it elsewhere. You are not legally obliged to take mortgage protection insurance from your mortgage provider.

To the bank having you pay a monthly premium is yet another income source. The truth is that banks offer only boilerplate policies and usually at a very high monthly premium. The bank is only buying a policy from an insurance company and selling it on to you. It is in their interest that you pay over the odds for this form of payment protection. Up to 60% of Irish mortgage holders could be paying too much for mortgage protection. Most never know any different.

Look for some independent advice

As in anything financial, or legal for that matter, independent advice can be invaluable. When it comes to deciding on mortgage protection insurance and where to get it, you can really save money. The bank or mortgage provdier is not the best option here. Take a look around and weigh up your options before you make any tash decisions. A comparable quote from a rival mortgage protection provider could save you many Euros a month. It need not take time either, just a quick online calulation can tell you everything.

If you think about it 20 or 30 euro a month can make a huge difference over the term of your mortgage. It could be the price of a nice holiday for you and the family. When the kids start going to college you will really appreciate the savings. Of course the bank or mortgage provider will not tell you this, only that you need mortgage protection insurance. Only when an independent advisor shows you the annual savings possible, then you can make up your mind.

Any other benefits to an independent advisor?

By using an independent broker for your mortgage protection policy advise you are tapping into their wealth of knowledge. Their years of experience come from helping people just like you, a home buyer at a vulnerable stage. Knowing what options you may have and the best protection insurance for you is not something readily available to everyone. When an independent broker comes back with a mortgage protection quote you know they’ll be working for you.

There are often other features to mortgage protection insurance that your bank may not offer you. The bank is looking to make money on the sale, not making sure you are getting all the bells and whistles. Before making up your mind consult a financial broker and get what is best for you.

An existing life insurance policy is not enough

In theory if you have enough cover from an existing life insurance policy then you do not need mortgage protection insurance. Your mortgage provider may tell you this and legally they could be correct. Central Bank of Ireland guidelines say the same. The question here however is, is the advice in your best interest? Once again independent financial advice will quickly put you straight.

How can mortgage protection insurance be better?

Yes a top of the range life insurance policy will pay off the mortgage early in case of your death. Your family will keep the roof over their heads and the bank will be happy. The truth could be a little different here and it is your next of kin who will suffer, if you get it wrong.

The cost of mortgage protection insurance may not add much to your monthly budget. When you consult an independent broker you will make savings. If you do pass away before the mortgage is paid in full then the insurance company will pay the balance according to your policy. There will not be any need to tap into the life cover and your loved ones will full benefit of it.

Think about it. You will not be around to provide for your spouse and family but they will own their home and have the lump sum from the life cover. For the cost of only a few Euros per month you could be looking after them for life.

How about mortgage payment protection insurance?

Yes mortgage payment protection insurance can be a good option. It is however a limited one and you should think long and hard before taking out a policy. You will find plenty of insurance brokers willing to sell you one of these policies but is it in your interest?

What is involved?

A mortgage payment insurance policy will pay your remaining balance but only for the first twelve months. The financial burden will then fall back on you and if illness is stopping you working then you could be in serious trouble.

Mortgage protection, including serious illness is the best option here. Talk to an independent financial broker before making up your mind, not your mortgage lender.

Stop paying too much

It may seem an obvious thing to say but too many people in Ireland are paying too much for their mortgage protection insurance. A policy that should be only costing them a manageable amount each month is putting pressure on their finances, needlessly. At Stop Paying Too Much we aim to put an end to this practice.

Our expertly-trained advisors will take you through all of your options. By getting the best of independent advice you will save money but also be fully covered when something goes wrong. Fill out our free savings assessment form today and start saving on your mortgage protection insurance.

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