Mortgage Protection

Noelie

I'm just after taking out a life assurance policy for my mortgage. The girl in the bank said that the payments will raise by 5% every year to cover inflation but so will the amount of cover.

Is there any point in accepting this increase as the amount for the mortgage will not increase and isn't this policy just to cover the mortgage.

with some simple sums the (original payments €64PM)
Year Payment
5-- € 81.68
6-- € 85.77
7-- € 90.05
8-- € 94.56
9-- € 99.29
10-- € 104.25

After ten years the payments will have gone up by 61%. Since the main reasons is for the mortgage to be covered would it be in my best interests not to increase the payments by the 5%

The policy is a Lifecover policy, so on the event of death the payment will cover the outstanding mortgage and any balance will be paid to next of kin.

frost

Noelie wrote:

I'm just after taking out a life assurance policy for my mortgage. The girl in the bank said that the payments will raise by 5% every year to cover inflation but so will the amount of cover.

Is there any point in accepting this increase as the amount for the mortgage will not increase and isn't this policy just to cover the mortgage.

In my experience, banks have not been the best buy for any kind of insurance.

You might want to consider mortgage protection life separately from straight Life Assurance. Mort. prot. policies are for the exact amount of the balance of your mortgage at any time. AFAIK the premium is fixed when you buy the policy (at least mine was) and stays fixed throughout the term of the policy (which is normally equal to the term of your mortgage). I did a quick Google.ie and found several, some of which can give you an online quote.

chuckles30

I just recently took out a mortgage and set up my life insurance independently with a broker. My broker indicated that my payments would remain the same and that possibly after 20-25 years I may no longer have to pay any premiums as the outstanding mortgage will be substantially less and the insurance co may decide I have paid enough. You should shop around before signing up to that particular policy. Try www.123.ie - this will give you a fair idea how much you can expect to pay - €64 sounds high, unless you have a huge mortgage - I am only paying €12-€13 on 150k over 30 yrs - now that's only for life cover - it does not include serious illness.

D'Peoples Voice

Noelie wrote:

I'm just after taking out a life assurance policy for my mortgage.

If it's for your mortgage, then perhaps look at life insurance as opposed to life assurance! It may seem like just a spelling difference, but it not, it's more than that.

Noelie wrote:

The girl in the bank said that the payments will raise by 5% every year to cover inflation but so will the amount of cover.

There are two reasons a broker/advisor may recommend such cover

He/She has your best interests at heart and realises than due to inflation eroding the value of your lump sum payable on death, your next of kin needs to have enough to both pay off the mortgage and provide a little nest egg to pay for funeral expenses etc

because broker/advisors receive initial commision of up to 90% of the incremental increase in your premium in the first year(4% thereafter), it's in their interests for you to keep increasing your premium.

Only you can decide which of the two it is!
Assuming that you plan to keep your current house/mortgage, and assuming it's an annuity mortgage as OPPOSED to an interest only(endowment) mortgage, then a decreasing term assurance(mortgage protection) is a better option, because the premium, which remains constant, is very cheap because your life cover decreases in line with your outstanding level of capital/loan. If it's an interest only mortgage, then I say take out a convertible term insurance policy, this allows you change your term, without further underwriting, should your endowment policy not be sufficient to pay off your mortgage.

Noelie wrote:

After ten years the payments will have gone up by 61%.

The premiums will rise faster than the cover, because each year you are getting older, so the probability of you dying increases in additional to the 5% increase in your level of benefit.