8th May 2015
WHAT IS MORTGAGE PROTECTION?
To quote the ad ‘It does what it says on the tin’ ....mortgage protection is not too dissimilar. A mortgage protection policy gives you and your family sizeable protection in the event that you die or get seriously ill. It is essentially decreasing term life insurance cover linked directly to your mortgage loan. As your loan reduces every year with your mortgage repayments so too does your life cover. Thus by the end of your loan term when you have repaid your mortgage in full - your cover likewise is reduced to zero.
What happens if you die…
Taking the unpalatable one first, namely getting caught by the ‘Grim Reaper’ – in this case your policy is triggered and the life company pays the amount of cover on the policy to you /your bank and your mortgage loan is cleared. This ensures that your partner/spouse and family do not have the added financial burden of trying to cope with paying off a sizeable loan with one the main funders of these repayments , having departed the stage.
How does Serious Illness cover work with it..
With Mortgage Protection you can also add in extra cover via serious illness. This is done on what is called an accelerated basis. This means you have both mortgage protection life cover and serious illness cover. However, if a serious illness claim is made, the mortgage protection life cover amount is reduced by the claimed amount. If you die without ever making a serious illness claim, the full mortgage protection life cover payment is made.
It is important to note that any serious illness claim is paid to the bank and not to you in the event that your mortgage loan is assigned to the bank.
For example John has a mortgage protection life policy covering €100,000 life cover and €50,000 accelerated serious illness cover over 20 years. After 10 years John suffers a major stroke and €50,000 is paid which reduces his original mortgage loan by this amount. Two years later John dies and the balance of €50,000 ( original life cover of 100,000 less 50,000 paid out on earlier serious illness claim) is paid out and clears the remainder of the mortgage loan..
Your need to knows…
It can be done in single names or joint names. In the latter case the claim is always paid on the first death.
It needs to be legally assigned to the bank which is very straightforward and should only take a couple of days although banks typically will say it takes longer if they are not providing the mortgage protection policy themselves.
You can switch your cover to another provider at any stage of the loan term. We do this regularly as it saves clients a lot of money as typically they have been sold an expensive policy by their bank in the first place! Note though it is crucial never to cancel your existing policy until your new policy is ready to go live.
There is no value in the policye. if you clear your mortgage earlier than the loan term make sure and cancel your mortgage protection policy as it won’t have any value at maturity i.e. when original loan term it was linked to, expires.
Childrens cover comes as a benefit with most plans at no extra cost although hopefully it is rarely availed of.. For example with Royal London Childrens cover on Mortgage Protection cover is €5,000 and covers the life assured(s) children from the age of 3 months up to age 18 or 21 if in full time education.