Buying a home is one of the most significant financial decisions most people make, and it typically involves taking out a mortgage. Since it can take decades to repay a home loan, it’s important to consider how your family would manage if you were no longer around to make those payments.
Mortgage Protection Insurance offers peace of mind by helping cover your mortgage balance in the event of your death or other unforeseen circumstances. If you are considering investing in mortgage protection insurance, here is what you need to know about how it works and why it is worth investing in.
What is mortgage protection insurance?
Mortgage protection insurance is an insurance policy designed to help homeowners cover their mortgage payments if they experience certain unforeseen circumstances, such as death, disability, or job loss. It is usually an optional policy and generally covers payments for 12 months.
Key Benefits:
- Mortgage Repayment:
It ensures making a lump-sum payment to your lender upon your death. It protects your home by settling your mortgage and preventing your family from facing foreclosure.
Serious Illness Cover:
Many policies offer the option to include specified illness cover. This means a payout if you're diagnosed with a serious illness listed in the policy, potentially helping with medical expenses and other costs.
Children's Life Cover:
Some policies may include a payout for the death of a child within a certain age range, often 3 months to 18 years (or 21 if in full-time education).
Guaranteed Insurability:
This feature allows you to increase your coverage or extend the term of your policy without providing new medical information, following significant life events like marriage or childbirth.
Accidental Death Cover:
Some policies provide interim cover from the application stage until approval, with a lump-sum payout in case of accidental death during this period.
Peace of Mind:
Apart from financial advantages, this policy gives you complete peace of mind knowing your family is protected financially if the unexpected happens. It pays off the mortgage if you, or someone you have the mortgage with, dies.
Are There Exceptions?
Most borrowers in Ireland can invest in a mortgage protection policy; however, there are fewer exceptions.
- Age or Health Issues: If you’re over a certain age or have a pre-existing health condition that makes obtaining mortgage protection impractical or excessively costly, you may be exempt. However, this requires approval from your lender.
- Buy-to-Let Mortgages: If the mortgage is for the purpose of investment property rather than your primary residence, lenders usually don't need mortgage protection insurance.
What are the various kinds of mortgage protection insurance?
There are different types of mortgage protection cover. For example, you can get:
- Reducing term cover: The coverage amount of this policy decreases as the mortgage is paid down, and the policy terminates once the mortgage is fully repaid. The amount of premium is irrespective of the changes in the level of cover.
- Level term cover: The insured amount remains the same throughout the mortgage duration. Therefore, the insurance company will pay out the initial amount you were insured for if you pass away before your mortgage is paid off. The mortgage will be paid with the insured amount, and any remaining balance will go to your estate.
- Serious illness cover: You can add a serious illness cover to your mortgage insurance policy. It means if you are diagnosed with and recover from a serious illness that is covered by your policy, your mortgage will be paid off by the insurance company. It will also be paid off if you die. It is usually more expensive than other types of cover.
- Life insurance cover: You can use your existing life insurance policy as mortgage protection insurance. However, it is possible only if your life insurance policy provides enough cover and is not assigned to cover another loan or mortgage.
Is Mortgage Protection Insurance suitable for your needs?
If any person takes a mortgage, he/she is required by their lender to have mortgage protection for uncertain events. Many people take up a policy with their mortgage provider; however, it is always recommended to shop around. You may also seek advice from an independent financial advisor. This allows you to see the best premium available to you while ensuring that you get the most suitable product for your needs.
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