It’s important to get the right mortgage protection policy for what may be your biggest financial asset and most important purchase - your home.
What is mortgage protection insurance?
It’s a type of insurance that runs for the length of your mortgage and will pay off your loan if you were to die during that term.
Mortgage protection is compulsory and must be taken out when you get a mortgage. It will cover the full loan amount you borrow - also known as the sum assured.
It works differently from a regular life insurance policy which isn’t linked to your mortgage, but mortgage protection is a type of life insurance.
They both pay out on your death but with life insurance, the sum assured is paid to your beneficiaries and with mortgage protection, it’s paid to your bank and any remaining funds are then sent to your beneficiaries after the loan is cleared.
Do you need mortgage protection in Ireland?
Yes, having mortgage protection is a condition of getting a mortgage. Your lender is required by law to ensure you have sufficient protection in place to cover the value of the loan.
It also gives you peace of mind knowing that your dependants can continue living in your home without the financial burden of paying the mortgage.
You can apply for mortgage protection insurance if you’re aged between 18 and 74.
Are there any exceptions?
There are some circumstances where your lender may decide mortgage protection isn’t necessary, these are the exceptions:
- The property the loan is for won’t be your family’s main residence e.g. a buy to let property
- You’re unable to get this type of insurance, or you can only get it if you pay a much higher premium than most other people
- You’re over 50 when the mortgage is approved
- You already have life insurance in place that covers the full mortgage amount
Types of mortgage protection insurance
There are two main types of mortgage protection and which one you need will depend on your circumstances. Here are the two types and why you might choose them:
Reducing term cover
With reducing or decreasing term cover, the cover reduces at the rate of interest you choose.
You should choose a rate that allows for increases in your mortgage rate, to ensure there’s enough cover to clear the balance.
You pay the same amount each month but the amount of cover steadily decreases as you pay off your mortgage.
If a claim is made, the remaining mortgage balance at that time should be paid off.
This type of cover is suitable for repayment mortgages, where you pay off the interest and capital of the loan over a set period. At the end of the term the mortgage is completely paid off and your cover has reduced to zero.
Level term cover
Level term cover is for the full mortgage balance and doesn’t reduce over time. So, whether a claim is made after one year or 21 years, the payout would be the same.
This is suitable for interest only mortgages, where the capital doesn’t get paid off, only the interest of the loan - so the mortgage value stays the same.
A level term policy is more expensive than a reducing term policy because the cover doesn’t decrease.
If you’re not sure which type of mortgage is best for you, our guide: Should you get an interest only mortgage? compares the two types.
What does mortgage protection insurance cover?
As well as paying off your mortgage in the event of your death, there are some additional features that are either included, or you can choose to add on.
What’s usually covered as standard?
- Accidental death: This provides interim cover from when you submit your signed application and Direct Debit details, up until your application is approved or declined. If you were to die during that period, a lump sum would be paid out.
- Guaranteed insurability: This is where you can increase the level of cover or extend the term following certain changes in your circumstances without giving additional medical evidence e.g. if you marry, have a child, buy a new house.
- Terminal illness cover: If you’re diagnosed with a terminal illness and have less than 12 months to live, payment in full will be made at that time.
- Children’s life cover: If your child dies during the policy term and is 3 months to 18 years old (or 21 if in education), a set amount will be paid, usually between €3,000 and €8,000.
What add ons can you get?
The main add on you can get is serious illness cover, also known as specified illness or critical illness cover.
Serious illness cover
When you add this benefit to your mortgage protection policy, it’s known as ‘accelerated’ serious illness cover.
You choose an amount up to 100% of your mortgage protection cover which can be paid out if you’re diagnosed with one of the illnesses listed in the policy document.
If you make a claim, your cover will reduce by the amount paid out, and any remaining balance would be paid if you later died during the term.
Most policies include two lists of illnesses - one that entitles you to the full cover amount, and one that entitles you to a partial payment. Here are some examples of each:
|Full cover conditions||Partial cover conditions|
|Blindness - permanent and irreversible||Crohn’s Disease (treated with surgical intestinal resection)|
|Cardiac Arrest - with insertion of a defibrillator||Less advanced cancers with specified surgery or surgical removal|
|Kidney Failure - requiring dialysis||Pituitary tumour – resulting in permanent symptoms or surgery|
|Loss of limb||Significant Visual Impairment - permanent and irreversible|
|Loss of speech - permanent and irreversible||Surgical removal of one eye|
|Parkinson’s Disease - resulting in permanent symptoms||Third degree burns - covering at least 5% of the body’s surface or 25% of the face’s surface|
You can find out more about serious illness cover in our dedicated guide: Should you get critical illness cover?
Mortgage insurance conversion cover
Once your mortgage is cleared, you can convert your policy into a life insurance policy without answering additional medical questions.
So, if you’ve developed a medical condition since taking out mortgage protection, you won’t have to declare it or pay the higher premium you’d normally be charged.
This add on may not be available if you have added serious illness cover to your policy.
Second medical opinion
If you’re diagnosed with a serious condition, you can get a second opinion from another specialist about the diagnosis and any treatment plan that’s been given.
This cover usually extends to family members too and may be included as standard with some policies.
Who is the cover for?
Anyone named on the mortgage will need cover. You can get single cover if the mortgage is in your name only, or joint cover if you have a joint mortgage.
If two of you are on the mortgage, you have the choice of a joint or dual life policy:
A joint policy will pay out on the death of the first person only, and then end.
Dual life protection can pay out twice, and should be no more expensive than a joint policy.
For example, if your partner was to die during the policy term, the mortgage would be cleared.
Cover would then continue for you and if you also died before the term ended, a second payout would be made and go to your estate.
Not all providers offer dual life policies and you may not be able to add serious illness cover to your policy.
Who offers mortgage protection insurance in Ireland?
There are several insurers and financial brokers that offer mortgage protection in addition to banks. Here are some of the main insurers:
You can choose to go through a financial broker if you want advice on the right mortgage protection for your needs.
How much does cover cost?
Mortgage protection cover can start from as little as €10 a month, but you should make sure you get the level of protection you need.
There are a few things that can affect the cost of your premium:
- Your age: If you’re young and healthy, your premium will be lower because there’s less likelihood of a claim being made.
- Your health: You have to declare any pre-existing conditions and whether you’re a smoker as these things can increase or decrease your risk, which affects your premium.
- How much the cover is for: The higher your mortgage is, the more you’ll pay.
- Type of policy: For example, whether it’s a reducing term or level term policy which is more expensive.
- Term of the policy: The longer the term, the higher the overall cost. The policy must run for the full or remaining mortgage term if you’ve switched providers.
- Where you buy your cover: Your mortgage lender will try and sell you mortgage protection but you’re likely to pay more. This is because they generally only have one or two products to choose from, so you’re limiting your options by not shopping around.
- Who the cover is for: Single cover is cheaper than joint cover. If there are two of you on the mortgage, it usually works out cheaper to have a joint or dual policy, rather than individual policies.
- What features you need: For example, if you choose to add on serious illness cover you’re likely to pay more.
Applying for mortgage protection
Whether you apply directly to the insurer, or go via a financial broker, it’s vital you answer all questions honestly, even if this means paying more for your cover.
If you don’t make a full disclosure of relevant facts including your medical details and history, it can result in the following:
- That a policy may be cancelled
- That any claims may not be paid
- You have difficulty in trying to purchase insurance elsewhere
How to choose the best mortgage protection insurance
When you’re looking for a mortgage protection policy, you’ll need to consider what features will be useful to you.
Here are a few pointers to choosing the right policy:
- Match the product to your mortgage type: e.g. level term for an interest only mortgage and reducing term for a repayment mortgage.
- Choose dual life over joint cover: If there’s two of you on the mortgage, shop around for a dual life policy which can pay out twice for the same cost as joint cover which only pays once.
- Keep to your budget: The interest rate you choose or that is set will affect both your fixed monthly payments and the amount that would be paid out in a claim. Try and find the cover you need within your monthly budget.
- Choose the right add ons: The main thing to decide is whether you want serious illness cover. Check any benefits you get through work so you don’t pay twice, and compare the cost of a standalone serious illness policy.
- Shop around for quotes: It doesn’t take long and could save you hundreds of euro each year.
What other insurance do you need?
Mortgage protection is just one of the insurance products you need when buying a house.
Our guide: What insurance do you need with your mortgage? explains the other types to consider.
Mortgage protection FAQs
Do I have to take out mortgage protection from my lender?
No, and it’s not usually a good idea either. This is because they will have very limited choice to offer you and you may miss out on a better deal.
By shopping around, you can get a policy that closely matches your needs for the best price.
Do I need mortgage protection if I have life insurance?
Not necessarily. If you already have life insurance that covers the value of your mortgage, you could allocate that to your lender, instead of your beneficiaries.
This would mean your mortgage being paid to the bank on your death, and only the excess (if there was any) would go to your loved ones.
It is easier to have two separate policies - mortgage protection to cover your mortgage, and life insurance for your beneficiaries.
If I don’t make a claim during the term, can I cash in my payments?
No, mortgage protection life cover is not a savings or investment plan. It’s only in the event of a successful claim that any payment will be made.
What happens if I stop making payments?
You mustn’t stop making payments or you’ll be breaching the terms of your mortgage.
Mortgage protection is designed to protect both you and the lender from huge financial risk.
If the worst happened and you weren’t covered, your property would be seized and your family would lose any rights to your home.
What is the maximum term a mortgage protection policy can run for?
You can choose a term up to 40 years, but most policies must end by the time you reach 85 years of age.
What’s the difference between life insurance and life assurance?
A life insurance policy is usually for a set term and only pays out if you were to die during that term.
A life assurance policy is more of a longer term investment product that runs until you die, rather than for a pre-set term. This makes it more expensive because it’s guaranteed to pay out.