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 your lender will require you to have in place before your mortgage can commence. It’s a mandatory requirement when you take out a mortgage, because - in the untimely event of your death - during the term of your mortgage, your lender wants to ensure that there are funds available to help repay the loan they granted you. In this way, mortgage protection protects your loved ones and your lender; should you die during the term of your mortgage.
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 lender 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. 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 insurance 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. 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 lender'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 lender 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!
Specified Illness Cover
Specified illness cover provides you with peace of mind by offering financial support if you are diagnosed with serious or life threatening illness. This type of cover pays out a lump sum upon diagnosis of certain conditions helping to ease the financial strain.
Specified illness cover can be taken out on its own or with your mortgage protection plan. If taken out with your mortgage protection plan, it's taken on what's known as an " accelerated basis". This means that if a claim is made under your specified illness cover, your life cover will reduce by the amount that is paid.
It's also worth noting that if you do unfortunately become ill, and your specified illness cover is attached to your mortgage protection policy, the life company will pay the lump sum from this cover directly to your lender to reduce your mortgage loan.
For example, imagine Mary has €200,000 mortgage protection life cover and €75,000 accelerated specified illness cover. Mary is diagnosed with one of the specified illnesses covered. Mary’s lender is paid €75,000 for her specified illness claim. She has no specified illness cover left and no option to claim an additional payment. Mary will have €125,000 life cover left after her specified illness cover claim is paid.
How Much is Mortgage Protection?
Mortgage protection is generally the cheapest form of life insurance. Cover decreases as the amount left on your mortgage decreases, which in turn reduces the life company’s exposure or potential pay-out in the event of your death, so they can price accordingly.
What Factors Affect the Price?
The key factors in determining the cost of your policy are loan amount, how long you are covered for, age, smoker status and health. The younger the applicant, the cheaper the premium tends to be; as we get older, we’re sadly more prone to illness.
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 partner approves almost 95% 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.
It's important that you answer all medical questions fully and truthfully when applying for any type of life insurance policy.
Do You Have to Take Out Mortgage Protection from your Lender?
This is an important one! The main misconception amongst home-buyers is that they have to go with their lender 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! Lenders therefore find it very easy to encourage their captive house-buying customers to take out their mortgage protection cover with them and offer it as a convenient option. By comparing offers from different providers, you’ll find a policy that best matches your needs.
Top Tips When Choosing the Best Mortgage Protection
1. If you and your partner are taking out mortgage protection cover, make sure you understand the options available to you. Remember, with SuperValu's Life Insurance partner you can get dual cover for the same price as joint cover – so you get twice the level of protection at no extra cost.
2. Stay as healthy as possible!
3. Be sure to check out what additional benefits are available with your policy. For example, many life companies now offer various value add services along with their cover at no extra cost.
4. Remember, you can switch your mortgage protection cover at any time.
5. Don't forget that as soon as you sort your mortgage protection cover, you will need to turn your attention to your home insurance. SuperValu Insurance will send you shopping vouchers to use towards your weekly grocery shop.
