Q. What’s the Difference Between Mortgage Protection and Life Insurance?

A. The cover on a mortgage protection policy reduces over time. The cover on a life insurance policy doesn’t. Life insurance costs a bit more, but all you legally need for a mortgage is mortgage protection.

And that, my friends, is the most frequently asked question in the whole wide world of life insurance.

Do You Need Life Insurance for a Mortgage?

“Nick, I’m getting a mortgage from my bank, and they’re pushing life assurance. Do I need life insurance for a mortgage?” – John

Repeat after me:

You don’t need life insurance for a mortgage.
You don’t need life insurance for a mortgage.
Ignore your bank — they tell fibs.

Some of their favourites:

• “We can offer you the lowest mortgage protection quote in the market.”
• “Other insurers don’t pay claims.”
• “If you buy elsewhere, it’ll delay your drawdown.”
• “If you don’t buy from us, assigning the policy will be a nightmare.”

Take it from me — all you need to draw down your mortgage is a bog-standard, basic mortgage protection policy (also known as reducing life cover). And if you can get a better deal away from your bank, do it.

Mortgage Protection Is Compulsory. Life Insurance Isn’t.

Mortgage protection insurance is a legal requirement for residential mortgages (unless you qualify for a waiver). Term life insurance isn’t mandatory — but it can be better value long-term.

Here’s how I’d put it: mortgage protection gets you approved; life insurance keeps you protected.

The Early vs Late Payout Trap

Say you’re getting a €300,000 mortgage for 30 years. You take out a life insurance policy for €300,000, thinking it’ll clear the mortgage and leave some cash behind.

• Scenario A: You die in 29 years with €1,000 left on the mortgage. Life insurance pays €300,000 to the bank — they clear the mortgage, and your family pockets €299,000.
• Scenario B: You’re hit by a bus tomorrow. The bank still takes the full €300,000 payout, leaving your family with nothing.

That’s not what you intended. You wanted your family to be financially safe, not your bank’s shareholders.

The only way to guarantee the mortgage will be cleared and an agreed lump sum will pay out to your family is to take out separate policies.
Read: Combine Life Insurance and Mortgage Protection.

Now, if you just want to get your mortgage over the line, mortgage protection will do the job nicely. But if you want a bit more flexibility — say you might move house, refinance later, or start a family — then plain life insurance can make more sense.

💡 Real Example: Why One Couple Chose Life Insurance Over Mortgage Protection

Here’s a real case from this week — a young couple, no kids (yet), buying their first home. We compared both options side by side.

Life Insurance

• Fixed level of cover that doesn’t reduce.
• Premium starts a bit higher, but cover stays the same for the full term.
• If one dies, the mortgage is cleared and any leftover balance goes to the family.

Example: One passes away with €100,000 left on the mortgage. The mortgage is cleared and €246,500 goes to the family.

Add a conversion option and they can extend or renew full cover later, regardless of health. If they have a child, they can increase cover by up to €100,000 without medicals.

Quote:
Type: Life Insurance
First Person: Non-Smoker (born 13/02/1996)
Second Person: Smoker (born 17/06/1994)
Cover: €346,500 each, 35 years
Conversion Option: Yes
Premium: €68 per month

Mortgage Protection

• Only covers the mortgage balance (no leftover payout).
• Cover reduces as the mortgage does, but the premium stays the same.
• Pays the bank directly — your family gets nothing once it’s cleared.

Example: One passes away with €100,000 left on the mortgage. The insurer clears the mortgage; there’s no money left for the family.

If the policy includes a conversion option, it only applies to the remaining balance, not the full amount.

Quote:
Type: Mortgage Protection
First Person: Non-Smoker (born 13/02/1996)
Second Person: Smoker (born 17/06/1994)
Cover: €346,500 each, 35 years
Premium: €42 per month

Bottom line: You need some sort of life cover to draw down your mortgage — mortgage protection ticks that box. But if you can afford a few extra euro each month and want flexibility or better long-term value, life insurance gives you more options down the line.

So What Should You Do If You’ve Got a Mortgage and a Family?

Simple. Take out two policies:

• Mortgage protection — to clear your mortgage.
• Life insurance — to provide for your family.

That way, if you pass away, your mortgage protection clears the loan, and your life insurance leaves a lump sum for your family — regardless of when it happens.

The Bank Will Also Push Serious Illness Cover

Of course they will. Because if you stick serious illness cover on your mortgage protection policy, who gets the payout?

Hint: it’s not you — it’s the bank.

If you want cover that actually pays you when you’re sick, get income protection instead. That’s the smart way to keep the show on the road if you can’t work.

Can You Use an Existing Life Insurance Policy for Your Mortgage?

Yes — as long as the cover amount and term are at least equal to your mortgage amount and term.

But here’s the kicker: some banks will give you the hard sell if you try to use your own policy. They’ve got targets to hit, so they’ll make noises about “delays” and “issues assigning cover.”

Ignore the drama. You can switch to a different insurer anytime — and if you cancel within 30 days, you’ll get your money back.

Can You Get a Cheaper Deal by Bundling Everything Together?

Despite what the insurers tell you, no single insurer is best for life insurance, mortgage protection, serious illness cover, and income protection. If your advisor is pushing one company for everything, ask yourself why.

Are they doing what’s best for you — or what’s best for their commission?

You’re doing it wrong if you buy all your cover from one insurer.

Read this next: Can you combine life insurance and mortgage protection?

Thanks for reading 🙂
Nick