Mortgage Protection is one of the cheapest forms of life insurance. Life Insurance is a policy that you can take out which would pay a tax free lump sum to your family/estate in the event of death.
How is it cheaper? Well because the level of life cover is designed to reduce alongside your mortgage over time.
John & Sinead have a mortgage of €200,000 over 20 years. Their bank requires them to have a Mortgage Protection plan for €200,000 over 20 years. In year 10 John has a sudden heart attack and dies. The current level of cover on the mortgage protection plan is €100,000; similarly the outstanding mortgage is circa €100,000. A claim is made on the life insurance policy and the lump sum is paid directly to the lender to clear the mortgage. If there is surplus after the loan has been paid, the balance will be paid to John’s estate.
You can opt to include the additional benefit of Serious Illness cover on your mortgage protection plan. This would be set up on an “Accelerated Serious Illness” basis. This means that if you make a claim for Serious Illness on your Mortgage Protection plan, the life cover is reduced by the claim paid.
Mark & Louise have a mortgage of €250,000 over 25 years. Their bank requires that they have a Mortgage Protection plan for €250,000 over 25 years. They decide to include serious illness and pay an additional premium for this benefit. Should Mark or Louise suffer a defined serious illness, then the mortgage protection plan would pay out the current sum insured to the bank.
It’s worth noting that you do not have to have your whole mortgage covered for serious illness. It can be expensive, but even having half of your mortgage covered for serious illness can give you extra peace of mind.
A mortgage protection plan can only be done on a single life basis or a joint life basis. You cannot include indexation or the conversion option on a mortgage protection plan. There is no cash value at the end of this plan.