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Life insurance for a mortgage is a type of life insurance policy that will clear the outstanding balance of your mortgage on your death. It’s also known as reducing term insurance or mortgage protection. This is because the amount of cover on the policy reduces over time in line with your mortgage balance. Mortgage protection will not leave a lump sum, it will simply clear your mortgage on death.
In this article I will answer the following questions:
Mortgage protection is a type of life insurance policy where your cover reduces over time. Some people call it reducing or decreasing term insurance. You insure yourself for the same amount and over the same term (years) as the mortgage you are getting.
e.g Sarah and Paul are buying a house for €300,000 and are getting a mortgage for 90% of the purchase price i.e €270,000. The mortgage will run for 25 years. They need a mortgage protection policy for €270,000 over 30 years.
If married they should buy a dual or a joint life mortgage protection policy.
If unmarried, they should buy 2 single life policies with Sarah paying Paul’s premium and vice versa. This reduces any potential inheritance tax liability.
Yes, for a residential mortgage, your lender will insist on mortgage life insurance before they will issue your mortgage cheque.
In some cases the lender may waive the need for life insurance:
Waiving the need for life insurance is down to the bank, legally they don’t have to waive mortgage life insurance
Mortgage insurance is not mandatory for an investment mortgage.
The cost of mortgage protection depends on:
Using Sarah and Paul above, and presuming they are non smokers with no health issues, here are a range of quotes for €270,000 mortgage protection over 25 years.
Mortgage payment protection insurance is……a waste of money.
In theory, it’s a policy that will pay your mortgage for 12 months if you can’t work due to illness or redundancy.
In practice it was missold to people who could never make a valid claim.
Avoid!
I know it’s hard not to confuse mortgage income protection with mortgage payment protection because they both sound so similar.
But the benefits are so different.
Mortgage income protection will provide you with an income to pay your mortgage if you cannot work due to any illness, injury or disability.
You will continue to receive this income until you get back to your job or if you can’t get back to your job, you will receive the income for the term of your mortgage.
So if you get sick on day 1 of your 25 year policy and you can’t get back to doing your job, your mortgage income protection policy will pay out for 25 years.
Mortgage income protection is a form of income protection – read more about the different types of income protection.
Let’s finish with an easy one:
With life insurance, the amount of cover doesn’t reduce over time. On death it pays out a lump sum your family can use to replace your income.
Mortgage protection is a form of life insurance where the amount of cover reduces over time. It’s designed to clear the outstanding balance on a mortgage.
Got any questions on mortgage life insurance but can’t find the answer in our FAQs?
No worries, ask me anything by completing the short form below and I’ll be right back.
Nick McGowan
lion.ie| making life insurance easier
We’re an online life insurance broker. We compare life insurance quotes for mortgage protection, life insurance, specified illness cover and income protection from all 6 leading life insurance companies in Ireland, instantly and anonymously.
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