3 things you might not know about Mortgage Protection Insurance

Mortgage Protection Insurance is life assurance cover that will clear your mortgage in the event of your (or your spouse’s) death. While it is obviously very necessary, taking out this cover often comes at a bad time for consumers, who are to the pin of their collars facing a new mortgage and all of the costs associated with a new house. For this reason, it is really important that you get the best (often the cheapest!) cover in place. Here are three points that you may not have known about mortgage protection insurance, that just might help you to get the right policy for you.

You don’t have to take out this policy with your bank. Your bank may arrange your mortgage for you. They may also insist on you having mortgage protection insurance in place as a condition of your loan. That is their right. However they cannot by law insist on you taking out this policy with them and cannot make the loan conditional on you doing so. You retain the right to take out any mortgage protection policy available in the market, once you ensure the required amount of cover is in place.

Now this is really important!

Your bank will usually have access to the policies of a single life assurance company. However your Financial Broker will have access to policies of all of the insurers in the Irish market, making sure that you get the very best / cheapest policy to meet your needs. Your bank must accept this policy.

Your cover does not have to decrease in line with the mortgage

The life assurance cover within traditional mortgage protection policies decreases in line with the outstanding mortgage amount. This is the minimum amount of cover that you must have in place – enough to clear the loan at any stage during the lifetime of the mortgage.

However you can have more cover in place. As part of a wider financial plan developed by your Financial Broker, you might choose to have a level amount of cover that will not fall, possibly for the original mortgage amount. In the event of death, the life cover amount will then be greater than the mortgage due, as some of the mortgage will have been repaid in the meantime. This excess cover is simply then paid to your estate.

There are many other benefits available

One of the benefits of taking out your Mortgage Protection insurance through your Financial Broker is that you can tap in to their knowledge of all of the plans that are available in the market, and access features that might not be available through the policy offered by your bank.

There are many other potential feature and benefits available through different insurers in the Irish market, and some of these features might just be very important to you. So talk to your Financial Broker and get the best policy in place for you!

Get your life assurance while you’re young!

Some people make the mistake that life assurance is only for middle aged and older people, who are starting to question their mortality. In fact it is viewed only as a necessary evil by younger people, many of whom only take out cover when they are forced to, for example when getting a mortgage.

But actually it makes a huge amount of sense to get life cover in place while you are still young, for a number of reasons

Life cover is cheaper (for the duration of the policy) for younger people
Life cover gets progressively more expensive as you age. Younger people get cover at the lowest premiums and under most term assurance policies, this price is then locked in for the full duration of the policy. So yes, while there is a small premium to be paid for cover (as opposed to no premium payable if you don’t have any cover), this premium then remains at this same level out into the future.

You’re healthier and more likely to get better terms (for the duration of the policy)
Young people are generally healthier than older people. That’s a simple fact. And because they are healthier and may not as yet have suffered medical conditions that they are destined to face in later life, young people find it easier to access life assurance cover at the lowest rates. If you are unfortunate enough to be diagnosed with any sort of a serious condition in later life, you can expect that your life assurance cover will be more expensive as a result of loadings to reflect your medical condition, as well as the fact that you are older. So getting life cover in place while you are young and healthy will help you avoid premium loadings.

You’ve less negative family history to impact the cost
Similar to the last point, another factor that impacts access to and the cost of life assurance cover is family history. If for example there is a family history of chronic illnesses, this will negatively affect your life assurance policy. Younger people have younger (and generally more healthy) parents. This means a more positive family medical history, and as a result more favourable policy terms.

You can protect yourself against future policy changes
Life assurance policies evolve in line with changing circumstances. When we think back to the likes of the HIV and AIDS epidemic of the 1980’s, one of the immediate impacts of this was a 15% hike in the cost of life assurance policies. Of course this hike only applied to new policies taken out from that point forwards. So getting in at a young age protects you against such future events. Of course if premium rates reduce (which they have also done from time to time), there is nothing to stop you switching to a new, cheaper policy. So you can win both ways!

Lots of reasons to consider life assurance in your early years....

Mortgage Protection: the Costs v the Benefits

Mortgage protection is often viewed as a grudge purchase. A necessary evil insisted upon by banks when consumers are at the pin of their collars, trying to buy a new home. But is this the right way to look at it? Because of the financial pressure people are under when starting out with a mortgage, they often forget about the benefit that they are actually paying for.

First of all - the Costs
Mortgage protection is actually a cheap form of life assurance. This is because the level of cover reduces in line with your reducing mortgage balance, unlike more traditional life assurance cover that remains constant (or even increases) during the life of the policy. Remember, the purpose of this cover is simply to repay your mortgage in the event of your death. 

There are other reasons behind the cost of this insurance for your life usually being quite low. Mortgage borrowers are often young couples, which in itself results in lower premium rates for them. On top of this, non-smokers see significant reductions in rates in comparison to smokers.

We’ve also seen a significant reduction in premium rates in Irish life assurance policies in recent years. This has been as a result of more favourable claims statistics – less people dying young, due to significant strides in medical science in the last few decades.

Even aside from these factors though, you want to ensure that you are availing of the lowest cost cover in the market! To do this, you need to engage the services of a Financial Broker who will find the best insurance quotes in the market for you. This is a job your bank cannot do – they are stuck with the products of a single provider.

And did you know that your bank cannot insist on you taking out the life assurance policy with them? They can only insist on the cover being in place. So stand up for your rights (and your pocket!) and ensure you get the lowest cost cover in place through your Financial Broker.

The Benefit
Don’t forget the benefit! The primary benefit of mortgage protection cover is the security that it gives you. The comfort of knowing that should you or your spouse die, your family home is secure and is one less worry for the bereaved to deal with.

None of us like to give these situations too much thought… But it is important to consider that in the event of a death in the family, this often results in the loss of an income, sometimes the sole income coming into the household. Then the mortgage repayments become a problem and then the bank is chasing you. All on top of your grief of losing a loved one.

So recognise the comforting benefit of this cheap life assurance. Talk to your Financial Broker about getting the best insurance quotes for you. Get your cover in place and enjoy your new home without worries.

Where do you buy your life assurance?

All life assurance policies are the same? The best place to buy life assurance is online or from your bank? The only thing to consider when buying life assurance is the price? Well in fact the answer to each of these questions is, FALSE!

Life assurance policies differ from provider to provider
The days of life assurance policies all being exactly the same are long gone… With people living longer now than they used to and recovery rates from illnesses improving all the time, the cost of life assurance has fallen significantly in recent years. As a result, the providers now compete both on price and through the addition of valuable policy benefits. Are you aware of the following?

• There are life assurance providers that will give you access to the best doctors from around the world, for a 2nd opinion when you have a serious illness?
• There are life assurance policies that will pay out your benefit immediately while you are alive, if you have been diagnosed with a terminal illness?
• You can get life assurance policies where the cover increases automatically each year, policies that pay out when the first of you or your spouse dies or indeed policies that pay out twice when each of you die.
• You can get life assurance policies to protect yourself, your family, your business partners, key employees, even to protect against you leaving an Inheritance Tax bill when you die.

So all life assurance policies are definitely not the same!

Buying online or from your bank only narrows your options
The problem with buying life assurance online or through your bank is that it will seriously narrow your options. Both of these sales channels will usually only have access to the products of a single life assurance provider. So apart from you potentially not getting access to the cheapest life assurance cover, you may well also miss out on some of the really valuable enhancements available.

A Financial Broker on the other hand has access to a broad range of life assurance products in the Irish market. They will find the right provider, offering the best product at the best price for you and your specific circumstances. They will also do all the work for you in terms of getting the cover arranged!

Life assurance is about more than the price
Of course the price is really important when you are buying life assurance. In fact your Financial Broker will often be able to match the lowest price in the market on the actual product that you want! Now that is really adding value! But your Financial Broker will add far more value than that. Apart from the price and added benefits, they will also consider factors such as,

• The claims payment records of the various providers
• The financial security of the providers
• How easy the providers are to deal with

Your Financial Broker is definitely the best place to buy your life assurance!

What is . . . ?

Life Assurance: This is cover designed to provide a financial lump sum to a family/person/company in the event of the death of a specified individual. There are different kinds of Life Assurance that include:

• Mortgage Protection – Decreasing Life Assurance – ends at set term

• Term Assurance – Level Life Assurance – ends at set term

• Whole of Life cover – Level Life Assurance – No set term

• There is reviewable and non reviewable Whole of Life cover

  Life Assurance with convertible option: You can request a conversion option on some Life cover. This allows you to extend the lifetime of your policy without having to supply any medical information. This allows some people to choose a shorter term for cover now, at a lower cost.

  An example of this benefit would be if you take out €100,000 Life cover for 10 years with a conversion option. During the 10 year lifetime of this plan you might get sick or be struck with an illness that would prevent you from taking out Life cover in the future. The conversion option would allow you to extend the term of your €100,000 Life cover beyond the 10 years and the Life company could only use your medical information from the original application.

  Serious Illness Cover: This is cover designed to provide a financial lump sum to a family/person/company where a specified individual is diagnosed with a Serious Illness.

  Income Protection: This is a cover designed to be a replacement Income if a person is unable to work due to illness or injury. It is particularly important for self-employed people.

  The cost of these covers depends mainly on your age, your smoker status, your health and the length of time you would like the cover.

  Pensions: During your working life, you can save into a Pension arrangement to subsidise your drop in income at retirement. The main advantages of this are that you get tax relief on your contributions and you get tax free growth on your investment.

  Savings/Investment plans: An alternative to saving/investing money in the bank. The main advantage is that there is a much greater potential to grow your investment. The main disadvantage is that your value can go down as well as up.

Tax Relief on a Life Assurance Policy

Pension Term Assurance is not something that is promoted much, even in my own industry. Not a lot of people know about it, although some people do have Life Assurance cover included in their company Pension scheme. In most cases people keep their Pension savings and their Life cover needs apart but as you will see below, you can keep these policies separate and still avail of generous tax relief.

Is it possible to get tax relief on a Life Assurance policy?

Yes there is a Life Assurance policy that you can take out and get tax relief at your marginal rate of tax within revenue limits. It is called Pension Term Assurance.

So why would you take this kind of policy out?

This is for anybody who wants to have a tax efficient Life Assurance policy. In some cases the cost could be up to 40% less than taking it out as a normal life policy.   

Who owns the policy and who benefits?

The person taking out the Life Cover owns the policy and usually it’s their estate (family) that receives the funds in the event of a claim.

So why doesn’t everybody take out Life cover this way?

There are certain restrictions depending on how it is being setup. You cannot assign this Life cover to a mortgage lender. The term of the cover is restricted to your retirement age (up to 75).

It used to be the case that the cost of Pension Term Assurance was higher than the cost of taking out a normal Life Assurance policy but more recently the gap between costs has reduced in many cases.

If I take this out, do I have to contribute to a Pension aswell?

No, a Pension Term Assurance policy is a separate, independent policy. The premium cost (less tax relief) is the only contribution required.

What about self-employed people?

A self-employed person can take out one of these policies. Depending on your company setup you may require an Executive Pension Term Assurance plan. Some self-employed people can set it up with the company paying the premiums with potential extra benefits (corporation tax relief).

Normal Life Cover v Pension Term Assurance

As you can see there are certain limitations and restrictions, but like a normal Life Assurance policy it pays out a lump sum on the death of the assured. And the key reason that you would take out a Pension (executive for self-employed) Term Assurance over a normal life assurance policy is to avail of the tax relief.

Life Assurance Q & A

The following are some of the most frequently asked questions when people are concerned about getting new or replacement Life cover.

A big concern of many people when they are considering changing their life cover is whether or not they lose out by cancelling a Life Assurance policy that they have had for years. The first thing to understand is that once you have completed a Life Assurance form as honestly (medical questions) as possible and once the first premium has been paid, you are instantly covered. That includes even if there is a life assurance claim after only a day of having the cover.

The main benefit to holding onto a Life Assurance policy that you have had for years would really only be if your medical status has deteriorated from when you took it out.

The leading question after this can be is it worth applying for Life cover if there are medical conditions personally or in your family that may affect a Life cover application? Some people do not even make an application for Life cover for fear of getting some sort of medical penalty.

There is little to be lost by applying for the cover, whether you are penalised or not. You do not have to proceed with the cover if you are not happy with the extra cost and it may be a penalty that might only be valid for specified time, which would at least give you an indication of when you will be able to get cover without the penalty.

There are different options for people who have medical conditions that may limit their access to Life cover. There is a Life Assurance company that only offer Life cover to people who have been declined Life cover completely. There is also Life cover for people over the age of 50, who are guaranteed Life cover, without being required to supply ANY medical evidence. It can be quite stressful being declined Life cover, but it is comforting to know that there are alternatives.

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