Mortgage Protection – Why Shopping Around Can Pay!

6th July 2021

Unfortunately (or fortunately depending on your prerogative!) this blog isn’t going to have any reference to A list actor’s speeches or analogies about golf caddies and financial advisors!! Alternatively, I felt it was an apt time to delve into some of the product offerings that SYS Group offer and where better a space to start than Mortgage Protection. Property has been to the forefront of Irish Politics and public conversation for a long period of time now and owning property is something the Irish people have a real love affair with. You may or may not be aware, but any mortgage draws down requires a Mortgage Protection policy to be in place to cover the financial liability of the loan in the event of your death. As a result, it’s a product for which much of the population will take out at some point of their lives. As a result, I think it’s important to shine a light on some details about the product itself.

What is Mortgage Protection Insurance?

Mortgage Protection 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 30-year term, your mortgage protection policy must also be in place for 30 years.

Why should you 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 important that you give yourself plenty of time in order to apply for Mortgage Protection cover. If all lives assured proposed on 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?

The benefit is something nobody ever wants to benefit from should the truth be told, but in the event of one of the policy holders dying 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. This however can be a flawed approach, as many of the lenders have preferred providers and as a result you most likely won’t be getting the best value on the market.  As a result, 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. A broker like SYS Group will research the market on your behalf and advise you of the best option available to you.

At present the providers in the market are offering various benefits on mortgage protection policies, none more so than Royal London. The current offering from Royal London is as follows:

• Price Match the Irish Market – They will price match the market and will not be beaten on premium.
• First Months Premium is free – The first month of your new policy is free and premiums will be collected from month two.
• Access to Helping Hand benefit – If you ever suffer a serious illness, injury, or bereavement, it provides you with the additional support you might need beyond a financial pay out.

If you have read this and it sparks your attention and you would like to find out more on the topic, or if you would like to requote to see if there is cheaper premium available, I can offer a couple of options! Firstly, you can contact me directly at daniel@syswealth.ie. You can contact me on LinkedIn https://www.linkedin.com/in/daniel-nagle-b551a6129

Alternatively, you can continue to follow these series of blogs that will be on the SYS platform on a regular basis and hopefully we can continue to help our clients and potential clients.