Taking out a mortgage to buy your family home is likely to be the single biggest financial commitment you will make. For that reason, it is really important to take some time to consider your options with regard to financial protection.
When purchasing a home, you may wonder whether you need mortgage protection or life insurance or should you consider purchasing both types of insurance.
The differences between both types of cover may be unclear and it is difficult to know which type of protection will fit your financial and family circumstances.
Choosing the right financial protection
Both mortgage protection and life insurance are important forms of financial protection as they provide essential cover to ensure that your family can remain in their home should the worst happen.
This decision largely depends on your family’s circumstances as well as your monthly budget.
Mortgage protection is legally required by lenders in most cases, although adequate life insurance cover will be accepted by most lenders in place of a mortgage protection policy.
Using life insurance to protect your mortgage
It is possible to assign your life insurance to your mortgage lender. This will mean that the life insurance payout will be paid to the lender should you die, with any remaining benefit paid to your beneficiaries (usually your family).
In this case:
It is important to realise though that, in this scenario, the amount of benefit paid by the life insurance policy after the mortgage is cleared may not be enough for your family to offer them long term financial security.
Combining life insurance and mortgage protection
Combining life insurance and mortgage protection cover can offer your loved ones a higher level of financial security.
Mortgage protection insurance only pays off your mortgage when you die, your family will still have to manage on a single income or may not have any income if one spouse is a stay at home parent.
Purchasing a term life insurance policy in addition to mortgage protection will offer your family more security as a term life insurance policy is not linked to your mortgage. This will mean that your loved ones will be paid a lump sum to meet immediate and longer term financial needs.
Affordability and flexibility
Purchasing two separate policies also gives you the flexibility to choose a term for each product that meets your needs. For example, if you have young children you can choose a longer life insurance term, independent of your mortgage term, to offer protection until they are financially independent.
It can also be more affordable to purchase two policies that are tailored to your needs, with mortgage protection being more affordable and protecting your mortgage and life insurance to provide a cash lump sum.
Example
A couple, non smokers, aged 40 and 38, have a mortgage of €350,000 with a 25 year term and two children aged 3 and 1.
Joint or dual life cover
If you have a joint mortgage your lender will require you to have joint or dual life mortgage protection in place.
Mortgage protection is usually offered on a joint life basis, meaning that the benefit is paid on a joint life first death basis. This means that the mortgage is cleared when one spouse or partner dies after which the policy is no longer valid.
Life insurance can be purchased as a joint life policy or can be purchased as a dual life policy meaning that the policy will pay a lump sum on the death of the first spouse but will pay a second benefit if the second spouse also dies during the term.
Dual life insurance cover can be more expensive than joint life but this is not always the case. Dual life insurance offers a higher level of protection to joint life insurance.
Serious illness cover
Serious illness cover can be purchased with mortgage protection insurance or life insurance and offers the additional benefit of paying a cash lump sum should you be diagnosed with a serious illness that is covered by the policy.
With mortgage protection insurance, the serious illness benefit lump sum is paid to the lender to cover your mortgage payments while you recover from your illness.
Life insurance serious illness cover is usually paid to the policyholder and can be used to pay the mortgage or can be used for medical or other expenses.
Who offers mortgage protection insurance and life insurance?
In Ireland both mortgage protection insurance and life insurance are offered by the following providers:
In addition to this, banks will offer to sell you mortgage protection when you take out your mortgage. You are not obliged to purchase mortgage protection from your lender and it is usually best to shop around for mortgage protection to avail of the best price.
Compare insurance quotes from every insurer
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We can show you tailored quotes from all of the insurers offering mortgage protection and life insurance on the Irish market today so that you can choose the right type of protection for your circumstances and get a great deal on mortgage protection and life insurance.
Take our 90 second online assessment and we will outline the options to you, use our online callback request to ask us a question or call us.
