Mortgage Protection etc

hillbloom

Registered User
Messages
23
Family member buying a house valued 260,000. Does he need MORTGAGE PROTECTION, LIFE COVER & SERIOUS ILLNESS cover.....all 3. Unfortunately, we do not understand insurance. I understand House Insurance ok. Serious Illness Cover is not compulsory but probably necessary on such a large mortgage. Then is mortgage protection & life cover a combined insurance or are they separate. How much would all this cost? I would appreciate any help. Hope its not a very stupid question.
 
They only need decreasing mortgage protection policy which covers death to fill bank requirements. Whether they need/want any of the others depends on their own situation, a chat with a broker might make it all clearer and give some indication of cost as there is no way to give a guess at cost as it is based on so many personal details.
 
Mortgage Protection is a form of life insurance and in most situations is obligatory when someone is getting a mortgage to buy a home for themselves. At a minimum, the borrower(s) must be covered for Mortgage Protection for the amount and term of the mortgage. You say that the house is valued at €260,000. Presumably your family member is borrowing less than this. It's the amount they're borrowing that's relevant here. So if, for example, they're borrowing €230,000 over 25 years, then they must be covered so that in the event of their death in the next 25 years, the outstanding balance of the loan is paid off. The requirement is therefore reducing as they're paying down the loan over time. A Mortgage Protection life insurance policy is designed so that the cover is also reducing in a broadly similar fashion to the reduction in what they owe. So if they died at some point in the future when they owed €100,000, then a Mortgage Protection policy should pay off €100,000 and so on.

To be clear - Mortgage Protection is just a type of life insurance policy.

There are many optional covers - level cover for the duration of the loan, illness cover etc. Each option costs extra and should be evaluated based on the needs of the person and their willingness/ability to pay extra for optional covers.

It will also be a requirement of the mortgage that the building itself is covered for at least the rebuilding cost, which will be determined by the mortgage valuation. The rebuilding cost is usually lower than the purchase price of the property itself. Contents insurance with the buildings insurance is optional but recommended.

I'm a broker and so my comments should be read taking my biased standpoint into consideration, but it's rarely a good idea to purchase the Mortgage Protection or House Insurance from your lender. Banks act as tied agents for life insurance companies - i.e. they can only sell you the products of one company. Bank of Ireland are tied to New Ireland Assurance and most of the others are tied to Irish Life. Your family member would be well advised to get the bank's best quotes and then shop around for their requirements and go with the ones offering the better deal. (In my experience, that's very rarely the bank.) It's illegal for a lender to make a mortgage offer conditional on the customer taking the insurances with the bank. And it's not easier or quicker to go with the bank for the insurances - the bank is only acting as an insurance sales agent and the customer still has to apply to the insurance company anyway.

Regards,


Liam
www.ferga.com
 
Got to agree here .Definitely better going with a broker for impartial advise. Also don't be given the sales pitch by the person in the bank how it's easier for them to do it than going through a broker.

I went with a broker and saved significant amount considering it's every month and over the lifetime of the mortgage.

Also explore whether it's better to get a life policy and assign it. Otherwise the mortgage protection whilst less you are paying the same amount of money over the lifetime but getting less. Also if you decide to trade up / move you then will probably have to then sort out a new policy which if you are older could be more expensive.

Do your research and go in with all your sums done and advantages / disadvantages written out.

Best of luck