Mortgage Protection vs. Life Insurance: The Great Irish Insurance Debate

So, you’re on the cusp of owning your very own home in Ireland.

Exciting times!

But before you start picking out curtains or arguing over whether the spare room should be a gym or a cinema, there’s a less glamorous but crucial topic to tackle: insurance.

🏠 Mortgage Protection: The Bank’s Safety Net

Let’s start with mortgage protection.

Think of it as the bank’s way of saying, “We trust you to pay back the mortgage but we’re not so sure about your longevity…”

It’s a life insurance policy specifically designed to pay off your mortgage if you pass away during the term of the loan.

In Ireland, it’s a legal requirement when taking out a mortgage.

Here’s how it works:

• Decreasing Cover: The payout amount decreases over time, mirroring your reducing mortgage balance.
• Matches your Mortgage: Same term and cover as the mortgage
• Assigned to the Lender: The policy is usually assigned to your mortgage lender, ensuring they get their money back if the worst happens.

In essence, mortgage protection ensures the bank isn’t left out of pocket, and your loved ones aren’t left scrambling to cover the mortgage if you head off unexpectedly.

💡 Life Insurance: Your Family’s Financial Cushion

Now, onto life insurance.

Unlike mortgage protection, life insurance provides a lump sum to your survivors if you die during the policy term.

It’s not tied to your mortgage (unless you want it to be – see assigning above) so it gives your family the flexibility to use the funds as needed—be it covering living expenses, children’s education, or even that dream trip to Disneyland (or Dundrum).

Key features:

• Level Cover: The payout amount remains constant throughout the policy term.
• Customisable Terms: You can choose the policy term and coverage amount based on your family’s needs.
• Beneficiary Flexibility: The funds go directly to your chosen beneficiaries, not the bank.

In short, life insurance is about providing financial security for your loved ones, beyond just the roof over their heads.

🤔 Can You Combine Mortgage Protection and Life Insurance?

Technically, yes.

You can attempt to cover your family and the mortgage with one policy.

But we say

DON’T EVEN THINK ABOUT DOING THIS

Imagine this scenario:

You take out a life insurance policy with €300,000 cover.

Fast forward 20 years.

Your mortgage balance is down to €50,000. If you die, the policy pays off the €50,000, and your family gets €250,000.

Sounds ok – apart from the business of dying.

However, if you don’t live a long and healthy life and pass away early in the mortgage term, the policy will just pay off the remaining mortgage balance leaving nothing to your family.

Granted they are left with a mortgage free house but are also left to survive on one income.

That’s the reason we recommend keeping mortgage protection and life insurance separate:

1. to ensure your mortgage is cleared
2. and your family receive an agreed lump sum on your death whenever this happens.

🧠 The Smart Move: Two Separate Policies

By maintaining separate policies, you can tailor each to your specific needs:

• Mortgage Protection: Covers the exact amount and term of your mortgage.
• Life Insurance: Provides additional financial security for your family, independent of your mortgage.

This approach offers:

• Flexibility: Adjust each policy as your circumstances change.
• Clarity: Clear understanding of what each policy covers.
• Choice of Insurers: You can avail of benefits from two separate insurers.

🏁 Final Thoughts

Navigating the world of insurance can feel like trying to find a clean spoon in the office kitchen—confusing and slightly daunting.

But with the right guidance, it doesn’t have to be.

Remember:

• Mortgage Protection: Mandatory for most mortgages in Ireland; protects the lender.
• Life Insurance: Optional but highly recommended; protects your family’s financial future.
• Never The Twain Shall Meet: Don’t try to combine them

If you’re unsure which combo suits you best—or if you just want someone sound to run the numbers—feel free to click and fill out our quick questionnaire.

I’ll take it from there and send you options that work for your budget and your peace of mind.

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While you’re here, you might also be wondering:

• What’s the Best Mortgage Protection Policy in Ireland?
• Income Protection: Is It Worth It If I Already Have Life Cover?
• Life Insurance with Health Conditions—Can I Still Get Covered?

Thanks for reading!

Nick

Editor’s note | We published this blog in 2022 and have regularly updated it.