It’s time to get down and dirty with mortgage protection.
We all know what a basic mortgage protection plan is, right?
It’s a type of life insurance policy that protects your mortgage lender. If you die, your policy will pay a lump sum of cash to pay off your mortgage.
So yeah, it protects your bank, but you pay for it.
Hardly fair, but in Ireland we must do all we can to protect the banks, isn’t that right? ?
What if I told you there’s a type of mortgage protection with way more bang for your buck?
This little gem is called a Convertible Mortgage Protection Plan.
Do you want the short version or the long version?
Here’s the short version if you’re in a mad rush:
A Convertible Mortgage Protection plan lets you magically turn your mortgage protection plan into another longer-term plan without answering medical questions
Think Clark Kent to Superman
But if you have more time on your hands, come with me along the scenic route:
Convertible mortgage protection is more Fancy-dan compared to your run-of-the-mill, elbows on the table, dirt under the fingernails mortgage protection.
You can use it to extend the length/term of your mortgage protection, convert it into a life insurance plan, and even take out a brand new policy.
And here’s the important bit – you can do all of this without answering medical questions.
Yup, that’s right. You could be on death’s door, and your mortgage protection policy provider still has to give you a new policy.
Nitty gritty time ⌚
Convertible mortgage protection meets your changing needs as you get bigger and bigger and bigger and turn into a real-life grown-up.
Because what you needed from your mortgage protection plan when you were a happy-go-lucky child-free, and unmarried 28-year-old will not be the same five or ten years later.
Now the 40-year-old grump who inhabits your creaky bones has a partner and three smelly kids and could do with a few tweaks to their mortgage protection.
So, here are four handy bits you can get from a convertible mortgage protection plan.
Say you’re remortgaging in the future and need to extend your plan longer than your original term. With a convertible mortgage protection policy, you can do this easy-peasy.
Remember that lengthy medical questionnaire you completed to get your first policy? Well, now you won’t have to do a new one.
Even if you signed up for your first convertible mortgage protection plan over 20 years ago, you still wouldn’t have to repeat any medical underwriting.
What a way to make life easier and guarantee you can get a new mortgage in the future.
Because if you don’t have the conversion option, there is no guarantee your insurer will give you a new policy in the future. If you can’t get cover, you can say goodbye to your planned new extension.
Much like benefit number one, benefit number two gives you that peace of mind that regardless of what health obstacles lie in wait, you’ll have no problem getting insurance cover.
This benefit is like a buy one get one free or a 2-in-1 special.
Not only are you free to convert your policy from a decreasing term policy to a level term policy – you also have what we insurance fellas like to call a ‘Life Events or Guaranteed Insurability Option (GIO)
This nifty number lets you increase your amount of cover should you need a bigger home to accommodate new little family members (without answering medical questions)
There are a few conditions to watch out for depending on the insurer but in general:
a) The insurer limits when you can use the GIO for certain life events
Here are the more common life events that can trigger the life events option for you:
b) The maximum you can increase your cover by is the lesser of 50% of the original sum or €100,000.
c) The insurer caps your total increase over the life of your policy at €200,000.
This is where brokers like myself can help weed out the type of convertible mortgage protection policy you need.
No matter how useful something sounds, you always want to research each policy and determine whether it suits your possible future needs.
Just in case you’re missing the value of using the conversion and guaranteed insurability options, let me break it down with an example.
You take out a mortgage protection policy today for €300,000 over 20 years.
Immediately, you start a family and use the GIO option to 100k to your policy, so you now have €400k cover.
You then see your dream home that needs a 500k mortgage but to make the finances work, and you need to extend the term to 25 years.
You can use the GIO again to increase by another 100k and use the conversion option to increase the term to 25 years.
And you can do all of this regardless of your health.
Hopefully, you can now see how useful combining the GIO and mortgage protection conversion options can be.
Taking out a mortgage is a long-term game.
Even if you can afford your mortgage comfortably in those first few years, who knows what the universe has in mind for your financial stability?
In a heartbeat, financial crashes or ill health can bring the best to their knees.
So if you have to pinch the pennies and go interest-only on your mortgage, the lender will insist you take out a level-term life insurance policy.
With the conversion option, this is a cinch.
Without it, you would have to answer health questions.
Unfortunately, most people go interest-only due to a health issue that has stopped them from working, so the chances of getting a new life insurance policy if you had to reapply are slim.
A convertible mortgage protection plan means you can temporarily move to an interest-only mortgage while you get back on your feet.
Zurich, Royal London, New Ireland and Irish Life all offer the conversion option on their mortgage protection plans but some charge more than others.
The mortgage protection conversion option isn’t available on plans from Aviva.
In a nutshell, that is why people should add the conversion option to their policy.
It gives you the option to add years to the term of your mortgage at any time without having to answer pesky health questions,
So, whaddya think?
Sounds pretty great, right?
My expert team and I live for this shit.
We have been in this game for a long time, we know it’s overwhelming, and we want to make it as easy as possible for you.
That’s why we write so many blogs. Our mission is to educate you, so you can make an informed decision.
But if you’re still a little confused or want to find out whether convertible mortgage protection is viable for you and your family, get in touch. Maybe basic mortgage protection and convertible life insurance would be a better option.
Thanks for reading,
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As Ireland's leading life insurance broker, we specialise in comparing the rates and policies from the top five Irish life insurance providers and offering the very best value quotes to suit the individual needs of our clients. Our expertise lies in finding a suitable insurance plan for those with specific needs, be it a particular illness, occupation or claim history, we've got you covered in every sense!