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You Don’t Need Life Insurance for a Mortgage (You Only Need Mortgage Protection)

 

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What’s the difference between mortgage protection and life insurance?

The difference between mortgage protection and life insurance is that mortgage protection insurance clears your outstanding mortgage if you die before you have it paid off. A life insurance policy will leave a lump sum to your family if you die. We call life insurance family protection to differentiate it from mortgage protection.

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

Nick, I’m getting a mortgage from my bank, my banker is 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.

Do you need life insurance for a mortgage?

Ignore your bank

They’re under serious pressure to hit sales targets

Permanent TSB brings in bonus to turn staff into sales soldiers

Next thing he’ll tell you that his bank can offer you the lowest mortgage protection quote.

What a whopper!

He might even threaten you if don’t buy from him, it will delay your mortgage.

……or if you don’t buy from him, you’ll run into problems assigning your policy.

All of this is

Ignore it.

Take it from me, all you need is a bog standard, basic mortgage protection policy (also known as a reducing term life insurance policy)

But there’s not much difference in price, shouldn’t I buy life insurance to cover the mortgage and my family?

Nooooooooooooooooooooo.

Why?

You see we all fool ourselves into believing we’ll live to a ripe old age.

So by the time we’re called to the pearly gates, our mortgage balance will be tiny, the life insurance policy will clear that tiny mortgage and leave a substantial lump sum to take care of our family.

Does this sound familiar?

But what if you die suddenly, in the early days of your policy?

Your life insurance policy will only clear your mortgage balance leaving nothing to take care of your family.

Let’s look at an example:

Say you’re getting a €300,000 mortgage for 30 years. You take out a life insurance policy for €300k to cover the mortgage and take care of your family.

You die in 29 years with €1000 left to pay on the mortgage. You life insurance pays €300,000 to the bank, they clear the mortgage and give the balance of €299,000 to your family.

But what happens if you don’t live for another 29 years?

What happens if you’re hit by a bus tomorrow?

After paying off the mortgage, your family gets nothing.

That’s certainly not what you intended when you took out your policy. You wanted your family to be financially safe in a time of great emotional distress. That’s why I advise taking out two policies if you have children or a financially dependent partner.
  1. Mortgage protection to clear your mortgage.
  2. Life insurance to provide for your family (family protection)

By arranging it this way, you know the mortgage protection policy will clear your mortgage and the life insurance will leave an agreed lump sum to take care of your family, regardless of when you shuffle off.

In short, you get peace of mind – and when you think about it, that’s really what you’re paying for every month.

By the way,  who gets the serious illness payout on a mortgage protection policy?

Hint, it’s not you…and I’ll bet nobody explained that to you either.

Don’t let your bank confuse you with standard, essential and comprehensive packages full of life insurance (even though you don’t have kids), serious illness cover (that’s paid to the bank), pretty crappy bill pay insurance and overpriced mortgage protection.

Do you really need mortgage protection insurance for a mortgage?

Yes, it’s compulsory in Ireland unless:

  • you’re over 50
  • the mortgage is for an investment property
  • you can’t get cover due to health
  • your premiums are excessive due to health

All the above is wrapped up under S126 of the Consumer Credit Act

What insurance is optional when you’re getting a mortgage?

You don’t need serious illness cover either.

Nor income protection but if your sick pay is crap at work, I 100% recommend you get income protection regardless of whether you have financial dependents. Your income is your most valuable asset so it should be the first thing you insure. If you don’t have an income, how will you pay the mortgage?

Is it hard to switch from life insurance to mortgage protection?

Look, I’m not going to lie to you. Some banks will be quite aggressive when it comes to life insurance policies. They have targets to hit and mouths to feed so I can’t blame them.

If you’re uncomfortable saying no to them,  I understand. But all is not lost, you can switch from the bank to another insurer at any time in the future without penalty. If you switch in the first 30 days, you get your money back.

Do you need bill cover if you’re getting a mortgage?

No, bill cover is a poor relation of income protection. You don’t need it for a mortgage.

Can you get cheaper life insurance and mortgage protection is you bundle it or link it together?

Despite what the insurers say, there is no single insurer that is best for life insurance, mortgage protection, serious illness cover and income protection. If your advisor is pushing one insurer, you should hear alarms bells. Is there more in it for them or for you?

All else being equal, choose:

  • Royal London for mortgage protection
  • Aviva for income protection
  • Zurich Life for life insurance
  • New Ireland for critical illness cover

If you’re buying all your cover from one insurer, you’re doing it wrong.

Is Mortgage Payment Protection the same as Mortgage Protection?

MPP or Mortgage Repayment Protection is a type of insurance that covers your mortgage repayment if you are made redundant. Mortgage protection clears your mortgage if you die.

AVOID MPP! They are a hoor to get paid out on.

Over to you…

Are you in the same position as John?

Is the bank giving you the hard-sell?

If you’d like a free, no-obligation recommendation, simply complete this financial-questionnaire and I’ll be back over email.

Thanks for reading 🙂

CALL ME BACK

Talk to you soon.

Nick McGowan
lion.ie | making life insurance easier

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