Mortgage Protection vs Life Term
What Policy Suits You?
There seems to be some confusion about what exactly is required in terms of life cover when taking out a mortgage. To give you a better understanding, we have provided information on how to protect your mortgage.
The basic requirement to satisfy the life cover condition on your mortgage is called a mortgage protection policy. There is an additional product available when taking out a mortgage called mortgage payment protection which is optional and can sometimes be confused with mortgage protection. Mortgage payment protection will pay a portion of your loan repayment - depending on your policy details - if you cannot work due to accident, illness or redundancy for up to a year.
To help you understand the details of mortgage protection, below we have provided an example as to how the policy can work.
A customer borrows €250,000 over 30 years for a mortgage under joint names. In year 25, one of the borrowers dies and the outstanding balance on the loan is €50,000. The policy will cover the mortgage amount remaining at the time of the claim. The policy is designed so that the cover amount decreases in line with your mortgage over the term of the policy.
Life Term Policy
If you wish you can take out a life term policy and use this to protect your mortgage instead. To help give you an understanding, below we have used the same example as above for both a single and dual life term policy.
Single Life Term Policy
A customer borrows €250,000 over 30 years for a mortgage in a single name. In year 25, the borrower passes away and the outstanding balance on the loan is €50,000. The policy will pay out €250,000, the bank take their €50,000 and the balance (€200,000) is paid to the borrower's estate or next of kin.
Dual Life Term Policy
A customer borrows €250,000 over 30 years for a mortgage in joint names. In year 25, one of the policy owners passes away and the outstanding balance on the loan is €50,000. The policy will pay out €250,000, the bank take their €50,000 and the balance (€200,000) is paid to the remaining policy owner. If the second life on the policy subsequently passes away after their spouse but before their 30 years has expired, a second payment of €250,000 will be paid out by the life company to their estate or next of kin.
You can also add specified serious illness cover to life term policies as an extra benefit and therefore any claim on this will be paid to you and not the bank. This is called standalone/independent specified serious illness cover. Specified serious illness cover is a list of specified conditions upon which a claim can be submitted if the illness falls under the scope of the policy. For more information and a list of the illnesses covered by each life company, you can check out our specified serious illness page here.
If you require more information on either type of cover, you can give us a call on 01 4003400 where a member of our life insurance team will answer any questions you may have.