Life Insurance v Mortgage Protection

Ladjacket

Hi everyone

In process of applying for mortgage. Just wondering on the benefits of having both life insurance and mortgage protection as opposed to just having mortgage protection.

Any advice welcomed!

Atlantic Dawn

Mortgage protection pays off the amount left on the mortgage, life insurance pays out a fixed amount, having both would mean if you say had a family and died your outstanding mortgage amount gets paid in full and they also get the life insurance amount.

Ladjacket

Thanks Atlantic Dawn!

So the only thing needed in essence is mortgage protection?

TheBody

Ladjacket wrote: »

Thanks Atlantic Dawn!

So the only thing needed in essence is mortgage protection?

Yes, mortgage protection is all you need.

Henry Ford III

TheBody wrote: »

Yes, mortgage protection is all you need.

Get proper advise.

A MPPA will satisfy the lenders interest, and is the cheapest form of life assurance, but that doesn't mean it's the best value (as the sum assured reduces and the premium doesn't).

Whether or not the O.P. needs additional cover beyond that depends on their individual circumstances.

Henry Ford III

TheBody wrote: »

Yes, mortgage protection is all you need.

Get proper advice.

A MPPA will satisfy the lenders interest, and is the cheapest form of life assurance, but that doesn't mean it's the best value (as the sum assured reduces and the premium doesn't).

Whether or not the O.P. needs additional cover beyond that depends on their individual circumstances.

Ladjacket

thanks everyone!

Pros and cons of taking this insurance with your mortgage lender?

IK09

Mortgage protection doesn't exactly pay off the amount left on the mortgage. It pays off an ever decreasing amount in line with the way your mortgage should decrease, if you make your repayments on time.

Mortgage protection is separate to the mortgage so if you miss a mortgage repayment, the protection you have will decrease, but the mortgage will not.

If you want cover for a mortgage just get mortgage protection as it's assigned to the Bank anyway, meaning any claim or payment on the cover would go to the Bank rather than going to you. Rather than paying you or your family a lump sum in the event of you or a partners death.

I'm a financial advisor but you should really sit down with an independent advisor. Do not take the banks word for anything.

Ladjacket

IK09 wrote: »

Mortgage protection doesn't exactly pay off the amount left on the mortgage. It pays off an ever decreasing amount in line with the way your mortgage should decrease, if you make your repayments on time.

Mortgage protection is separate to the mortgage so if you miss a mortgage repayment, the protection you have will decrease, but the mortgage will not.

If you want cover for a mortgage just get mortgage protection as it's assigned to the Bank anyway, meaning any claim or payment on the cover would go to the Bank rather than going to you. Rather than paying you or your family a lump sum in the event of you or a partners death.

I'm a financial advisor but you should really sit down with an independent advisor. Do not take the banks word for anything.

As a first time buyer, what would your recommendation be?

IK09

Ladjacket wrote: »

As a first time buyer, what would your recommendation be?

You really need to sit down with an independent advisor. I don't know your situation so cant advise.

When you're dealing with life cover it's fairly simple stuff so any advisor should be able to take care of you. Call a local broker and have them send someone out to you.

cruizer101

IK09 wrote: »

Mortgage protection doesn't exactly pay off the amount left on the mortgage. It pays off an ever decreasing amount in line with the way your mortgage should decrease, if you make your repayments on time.

Mortgage protection is separate to the mortgage so if you miss a mortgage repayment, the protection you have will decrease, but the mortgage will not.

Does that work the other way around too. i.e. if you overpay on your mortgage the principle left would be lower than the payout amount. so you would get a payment.
Or since it is assigned to the bank do they get it?

IK09

cruizer101 wrote: »

Does that work the other way around too. i.e. if you overpay on your mortgage the principle left would be lower than the payout amount. so you would get a payment.
Or since it is assigned to the bank do they get it?

Yes it is the same in the reverse scenario. Any excess of a payment would be paid to the estate of the deceased.

Liam D Ferguson

Ladjacket wrote: »

thanks everyone!

Pros and cons of taking this insurance with your mortgage lender?

I'm a Financial Broker so any comments I make should take into consideration the fact that I'm probably biased. But I'll try to stick to verifiable facts rather than just my biased opinions.

Banks act as tied agents for just one life assurance company. In other words, they can only show you the Mortgage Protection product of whatever life assurance company they're agent for. Bank of Ireland can only sell New Ireland policies and most of the rest are tied to Irish Life. A good broker can look at the prices from six different companies (including Irish Life and New Ireland) and see which one is cheaper for you. Might or might not be the one your bank is tied to. Most brokers get paid commission on Mortgage Protection policies so you won't pay them a fee for giving you that choice.

Get a quote off your bank AND get one off your broker and see which is best.

Contrary to what the bank might like to tell you, it's not easier or quicker to apply for Mortgage Protection through them. You still have to apply to the life assurance company whatever route you go. The bank is only acting as the agent.

It's illegal for a bank to make a mortgage offer conditional on you taking out their chosen life assurance product.

As far as I know, all banks can only offer "joint life" Mortgage Protection policies to couples. Both people are covered and if one of them dies, the policy pays out and the policy ends. A good broker can get you "dual life" Mortgage Protection for the same money (or probably less than a bank) - dual life is where both people are covered, but if one dies and a claim is paid out, a dual life policy continues to cover the survivor until the end of the policy term. In a scenario where both people die around the same time (e.g. the car crash scenario) a dual life policy would pay out twice. A broker can get dual life cover for the same price as joint life.

I'd agree with all previous posts about the need to get advice. Not all policies are the same and not all customers are the same.

ford2600

Liam D Ferguson wrote: »

I'd agree with all previous posts about the need to get advice. Not all policies are the same and not all customers are the same.

Just on life insurance is their any guides/ready reckoners on an amount to insure?

For example a 43 father and main earner and would like cover for next 21 yrs until child is able to earn. How many years income? Is insurance payout in event of death taxable? Does that depend on other assets?

Liam D Ferguson

ford2600 wrote: »

Just on life insurance is their any guides/ready reckoners on an amount to insure?

For example a 43 father and main earner and would like cover for next 21 yrs until child is able to earn. How many years income? Is insurance payout in event of death taxable? Does that depend on other assets?

Good question. For years it's been a pet hate of mine that people take out arbitrary, almost random levels of life insurance cover - usually rounded to the nearest hundred thousand. Often the amount of cover can be based on some variation of the following conversation: -

<Salesman>: "Okay Mr Ford, cover of €2 million will cost you €XXXX per month."

<ford2600>: "What? I've no intention of paying €XXXX per month. I was thinking more along the lines of €XX per month."

There follows some horse-trading with revised quotes being done for lower amounts of cover until eventually the salesman comes up with a figure that costs roughly what the customer is willing to pay. Of course that's better than having no cover at all but it doesn't bear too much of a relationship with your actual financial circumstances. You wouldn't insure your car or your house for a random amount so why would you do it for life insurance?

Anyway, enough of my rambling and ranting. In my opinion, the correct method of working out how much personal life cover you should have would be something along these lines: -

• What's your take-home pay? That's the figure that needs to be replaced if you're gone.
• Take off the monthly amount you pay to your mortgage, as this is presumably covered by a Mortgage Protection life insurance policy.
• Take off the State Widow/er's pension.
• What's left is the monthly amount you need to replace. You can either insure yourself for a monthly income in the event of death, or calculate a capital sum that would give you this income over the number of years you need it.
• Take off any existing life insurance benefits you may have, including Death in Service in your job.
• Take off the value of any pension funds, as these will be paid as a lump sum if you die before retirement.

That's a fairly rough guide. You may want to tweak it, e.g. if you have a car loan add a lump sum to clear the car loan and reduce the monthly income requirement. Or you may want to add additional cover for things like college education for kids, a legacy for the kids etc.

But you get the drift.

A life insurance claim is part of your estate. Capital Acquisitions Tax (CAT) might apply if the recipient is not your spouse.

ford2600

Liam D Ferguson wrote: »

Good question. For years it's been a pet hate of mine that people take out arbitrary, almost random levels of life insurance cover

Thanks for that very detailed reply. Mortgage free and loan free and have some unearned income. I'll need to have a good think about rest of your post. Pension is currently in overdrive with last 4 years tring to play catchup.

One last question; I presume lump sum isn't index linked, is their products available which provide this? (That might be stupid question but it just occurred to me)

Liam D Ferguson

ford2600 wrote: »

One last question; I presume lump sum isn't index linked, is their products available which provide this? (That might be stupid question but it just occurred to me)

You can buy policies that index-link the premium and amount of cover annually. Watch out for a subtle ploy of some insurance companies here. Some companies index the cover and premium by the same rate, e.g. the cover and premium both increase by 5%. Others increase the cover by one rate and the premium by a higher rate, e.g. cover increases at 4% and premium at 5%. The latter ends up costing more over the years.

Geuze

Ladjacket wrote: »

thanks everyone!

Pros and cons of taking this insurance with your mortgage lender?

The bank is acting as an agent for an insurer, and the premium will always be higher than if you buy the same insurance from a discount broker.

Fol20

IK09 wrote: »

Mortgage protection doesn't exactly pay off the amount left on the mortgage. It pays off an ever decreasing amount in line with the way your mortgage should decrease, if you make your repayments on time.

Mortgage protection is separate to the mortgage so if you miss a mortgage repayment, the protection you have will decrease, but the mortgage will not.

If you want cover for a mortgage just get mortgage protection as it's assigned to the Bank anyway, meaning any claim or payment on the cover would go to the Bank rather than going to you. Rather than paying you or your family a lump sum in the event of you or a partners death.

I'm a financial advisor but you should really sit down with an independent advisor. Do not take the banks word for anything.

You can also get a term cover where it covers you for a set amount for the duration of your mortgage. They cost more but depending on your situation can be useful. Eg interest only mortgage or mortgages with breaks.

Henry Ford III

Liam D Ferguson wrote: »

You can buy policies that index-link the premium and amount of cover annually. Watch out for a subtle ploy of some insurance companies here. Some companies index the cover and premium by the same rate, e.g. the cover and premium both increase by 5%. Others increase the cover by one rate and the premium by a higher rate, e.g. cover increases at 4% and premium at 5%. The latter ends up costing more over the years.

Where can you get 5% and 5% indexation Liam? I remember Caledonian used to do it but stopped.

Liam D Ferguson

Henry Ford III wrote: »

Where can you get 5% and 5% indexation Liam? I remember Caledonian used to do it but stopped.

As far as I know New Ireland are the only ones doing indexation of cover and premium at the same rate. They do 3% and 3%.