What is Mortgage Protection Insurance?
Mortgage Protection insurance is a life insurance policy which pays off your mortgage should a life assured die during the term of the mortgage. The term of the mortgage protection policy coincides with the term of your mortgage. So, if you take out a mortgage over a 25 year term, your mortgage protection policy must also be in place for 25 years.
Why you should get it?
Your mortgage lender requires a mortgage protection insurance policy in place, before they will allow you to drawdown your mortgage. The Mortgage Protection policy will be ‘assigned’ to the mortgage lender. This means that in the event of a claim, the benefit will be payable to them for the purpose of clearing the mortgage.
When should you get your Mortgage Protection Insurance?
It is imperative that you give yourself plenty of time in order to apply for Mortgage Protection cover. If all parties to the policy are in good health and have a good health history, the policy could be accepted within days. However, if there are any health issues or a history of health issues, the Life Company may request further information which will inevitably delay the process.
How does it work?
Mortgage protection cover reduces over time, as the amount you owe on your mortgage reduces. At the end of your mortgage term the cover will have reduced to zero as the mortgage will have been fully repaid, assuming all repayments have been made on time.
The sum assured is based on an assumed interest rate of 6%. You should be aware that if the average interest rate over the term of the loan exceeds this rate, there may be a potential shortfall between the benefit paid out on a claim and the outstanding mortgage.
Your interest rate could be lower than 6%, however the life companies assume a rate of 6% to ensure you remain covered should interest rates rise during the term of the policy.
What are the benefits?
Should one of the policy holders die during the term of the mortgage, the insurance company pays the policy benefit direct to your mortgage lender. The mortgage lender will allocate the amount needed to clear the mortgage and if there is an amount left over, they will pass it to your estate. If the cover is not enough to pay off the mortgage in full, the remaining part of the mortgage will need to be repaid.
Where to go for Mortgage Protection Insurance?
Most mortgage lenders offer to arrange mortgage protection insurance for you when you apply for a mortgage.
You do not have to take out your policy with the mortgage lender. You are free to shop around for a suitable policy. Lenders cannot refuse you a mortgage should you decide to source your policy elsewhere. An insurance broker will research the market on your behalf and advise you of the best option available to you.
Do you need to know more about Mortgage Protection? Ask for a quote on Mortgage Protection Insurance through First Ireland’s website or
Call us at 01 8820895
