What is Mortgage Protection:
Everything You Need to Know
Are you buying a new home, and feeling confused by the various documents and policies required? Don’t worry, you’re not alone! There’s lots to take in when it comes to getting a mortgage, and the financial jargon certainly doesn’t help. As you may have discovered, one of the legal requirements when you buy a property in Ireland is mortgage protection insurance. But what exactly is this, and how do you go about acquiring it? Here’s everything you need to know.
What is Mortgage Protection Insurance?
In a nutshell, mortgage protection is a life insurance policy that decreases as your loan reduces over time. It’s a mandatory requirement when you take out a mortgage, because - in the untimely event of your death - your bank wants to ensure that the loan they granted you is paid off immediately. In this way, mortgage protection protects both you and your lender; should you die during the term of your mortgage, the bank thankfully won’t need to chase your next of kin to pay off the balance. So, for example, if you and your partner borrowed €250,000 over 20 years and in year 10 your partner sadly passed away, your mortgage protection policy would kick in and pay your mortgage lender the outstanding €125,000, completely clearing your loan.
Who Needs to Take Out Mortgage Protection?
While there are a couple of instances where it’s not required (we’ll get to those shortly), for the most part, anyone applying for a mortgage to buy their own residential property needs to take out mortgage protection. It’s a mandatory requirement, and as you’ll soon discover, the bank providing the mortgage will insist on it!
Types of Mortgage Protection Insurance
There’s only one type of mortgage protection insurance, but the cover can differ based on your circumstances. If, for example, the property is in one name, the cover must be set up on a Single Life basis. But, if - as in many cases - there are two people borrowing, the cover should be set up on a Dual or Joint Life basis. Couples/life partners should opt for Dual, as they’ll essentially get twice the cover, which is always good! In simple terms, Dual means a claim can be paid on both deaths, and if one person dies, the policy continues in the name of the survivor. Joint meanwhile is payable on one death (within the terms of the policy). While some life insurers make Dual cover more expensive than Joint, SuperValu Insurance - through our chosen partner - offer this valuable benefit at no additional cost.
When is Mortgage Protection not Required?
There are a couple of scenarios where mortgage protection isn’t mandatory, but these are rare. First up, if you’re buying a property as an investment; in other words, it’s not your primary residence. However, it’s still highly recommended to take it out in this instance. There are also exceptional circumstances, usually where ill health is an issue, when an applicant can request a mortgage protection waiver. These are given at the bank’s discretion though and are normally only granted where there’s a second person on the mortgage who can cover the repayments.
What Does Mortgage Protection Cover?
In short, mortgage protection covers the property loan amount that you borrowed from your bank to acquire your home. For example, if you took out a €300,000 mortgage loan over 30 years, your mortgage protection policy would be for a similar amount, and its term would also be over 30 years.
What Add-ons are Available?
There are two main add-ons you can opt for if you wish… but don’t feel pressured by your provider to avail of them!
Serious Illness Cover
This first option pays out a lump sum if you become seriously ill, for example if you have a stroke, heart attack, cancer etc. While this type of cover means huge peace of mind, it can be quite expensive, so it may be something you consider a little further down the line. It’s also worth noting that if you do unfortunately become seriously ill, with serious illness cover the life company will pay the lump sum from this cover directly to the bank to reduce your mortgage loan.
Convertible Cover
This option allows you to convert your policy (before it finishes) into a new life insurance policy, without the need for any medical underwriting. Unsure about life insurance? Learn more here.
How Much is Mortgage Protection?
It depends. Mortgage protection is the cheapest form of life insurance, with premiums starting from as low as €10 per month. As the cover reduces in line with your mortgage, the life company’s exposure or potential pay-out in the event of your death also reduces, so they can price accordingly.
What Factors Affect the Price?
The two key factors in determining the cost of your policy are age and health. The younger the applicant, the cheaper the premium tends to be; as we get older, we’re sadly more prone to illness. Good health also ensures cheaper premiums, as the underwriters know there’s far less risk of them having to make a pay-out. Key to note is that smoking is one factor that will ensure a hefty uplift on your premium cost. If you’ve smoked (or vaped) within 12 months of applying for mortgage protection cover, you’ll be penalised by the life company, and typically see your premium rise by a whopping 80%+. Another reason to quit!
Do I Need to Undergo a Medical Examination to Take Out Mortgage Protection?
Most likely, no. Over 90% of applicants are approved for mortgage protection without a medical, and with some companies the acceptance rate is even higher. For example, SuperValu Life Insurance’s chosen partner approves almost 98% of all applications. One of the main reasons is that nowadays, application forms provide much more detailed information to life companies, meaning the requirement for further medical information on the applicant is reduced. In certain circumstances (for example, where a high level of cover is required or the applicant has an ongoing medical condition), they may request a PMA (private medical attendant’s or doctor’s report) or a nurse medical to be completed.
Do You Have to Take Out Mortgage Protection from your Lender?
This is an important one! The main misconception amongst homebuyers is that they have to go with their bank for mortgage protection cover. The answer is… they don’t! For most people, a mortgage is the biggest loan they’ll ever take out in their lives. As a result, they often feel under pressure to sort it quickly in case the lender changes their mind! Banks therefore find it very easy to encourage their captive house-buying customers to take out their mortgage protection cover with them. But in fact, banks are often the most expensive providers, as they’re all tied to one life company. For example, Bank of Ireland own New Ireland and all their mortgage protection business is done with them. What’s more, banks may try to up-sell you other products such as serious illness cover, life insurance and income protection. These can cost considerably more than you had budgeted for at a time when you’re trying to keep your costs to a minimum.
Top Tips When Choosing the Best Mortgage Protection
1. First up, don’t automatically go with your bank, no matter how much they encourage you! A survey in 2018 via experts Ireach on how the banks sell mortgage protection cover, found that 47% (or 3 out of 5) Irish people felt their bank put pressure on them to take out their mortgage protection policy with them.
2. If you and your partner are taking out mortgage protection cover, make sure to opt for Dual Life basis. Remember, SuperValu Life Insurance offer this for FREE.
3. Stay as healthy as possible! Avoid smoking or vaping, as these habits will certainly drive up your cost.
4. Be sure to check out what additional benefits are available with your policy. For example, many life companies now offer various wellness packages as a free add-on with their cover.
5. Remember, you can switch your mortgage protection cover at any time and make sizable savings (particularly if a bank sold you your policy).
6. Know that SuperValu Insurance offers you a lifetime discount of 15% on your mortgage protection insurance (with the first month free), so you’re making savings from the beginning!
7. Dont forget that as soon as you sort your mortgage protection cover, you will need to turn your attention to your home insurance. SuperValu Insurance can also help you here with a 15% online discount along with sending you shopping vouchers to use on your weekly grocery shop.
