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Life Insurance for Split Mortgages

If you’ve been offered a split mortgage, your agreement will contain the following paragraph:

You May Need To Update Your Life Assurance
Please note that your existing life assurance policy, should you have one, may need to be amended as it may not cover the extended term (if applicable) of your mortgage or the outstanding balance. We would therefore strongly recommend that you investigate this matter.

So, what does that mean exactly?

Let’s look at a practical example of life insurance cover for split mortgages. We’re working on this at the moment.

Names have been changed to protect the identity of our clients.

Ann and Barry have a mortgage of €260,000 with 8 years left to pay on it.
They have been offered a split mortgage by their lender as follows:

  • €140,000 is the active amount to be repaid on a capital and interest basis over 8 years.
  • €120,00 is to be warehoused, paying 0% interest meaning in 8 years, the full €120,000 remains outstanding.

Why is their mortgage protection policy no longer adequate?

The amount of cover on a mortgage protection policy reduces as the mortgage is paid off. The policy is designed to clear the outstanding balance on a capital and interest mortgage. Here’s how the cover on Ann and Barry’s mortgage protection policy will reduce over the next 8 years.

  • 8 years remaining € 260,000.00 mortgage protection cover
  • 5 years remaining € 176,368.91 mortgage protection cover
  • 4 years remaining € 145,081.70 mortgage protection
  • 3 years remaining € 111,917.26 mortgage protection
  • 2 years remaining € 76,762.95 mortgage protection
  • 1 years remaining € 39,499.38 mortgage protection
  • 0 years remaining € 0.00 mortgage protection down to 0.

Let’s fast forward three years:

As you can see from the table above, their mortgage protection will have reduced to €176,000 but the outstanding balance on their mortgage will be roughly €211,000 (€91,000 left on the active account plus €120,000 on the warehoused account).

If either Ann or Barry dies at that stage,  the full mortgage will not be cleared.

Even more worryingly, if we fast forward 8 years, their mortgage protection policy will have expired but they will still owe €120,000. Due to their ages, it may be difficult, if not impossible, to get life insurance at that stage.

Ok, so what can I do?

There are various options open to you but these depend on your current cover, your age, health and how much you can afford to spend. There are other personal considerations that we must also take into account but that’s beyond the scope of this post.

Conclusion : Life Insurance for Split Mortgages

If you have received your split mortgage agreement letter and are feeling a little overwhelmed by the life assurance side of things, you should take professional advice (instead of pulling your hair out)

If you don’t have an advisor, I’d be very happy to help.

If you’d like me to make a recommendation on the types of cover you should consider based on where you are in life, please complete this questionnaire and I’ll be right back.

Nick McGowan

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