I frequently get asked this by clients and friends alike…they go on to say “I have mortgage protection anyway, sure that’s the same thing right?” Yes, and No
Mortgage Protection is indeed Life Cover. It will pay off any outstanding balance on your mortgage if you die and it is designed to decrease as your mortgage decreases. But that is it. Nothing else.
If you have dependants then mortgage protection alone simply isn’t enough.
We know that Life expectancy for men and women is on the increase, and is currently well into the 80’s but sadly, there are always outliers. Both illness & accidents can mess with our lives and those of our families and while we can’t live our lives expecting the worst – we can be financially prepared for it.
How do I know the amount of cover that I need?
There are a number of simple formulae to quantify this, which mainly take into account the impact of the loss of your earnings to your family. If you aren’t working outside the home you may also represent a financial loss, perhaps you may be caring for children, which means there is a financial value to your time.
If you can’t afford to put cover in place up to the potential required level, well then a level of cover you can afford is better than nothing.
What sort of cover should I have in place and what are the costs?
As mortgage protection decreases as you pay off the loan, it is cheaper than other types of cover.
The most common type of Life Cover after mortgage protection is called “Term Life Cover”. This as you would expect is a level of cover you put in place for a specified term, e.g. 20 years. An amount of €250,000 over a 20-year term for a 33-year-old will cost approximately €18 per month. However, if you smoke, this cover will increase to approximately €29 per month. So another financial tip is, give up smoking.
You have the option of adding what we call a conversion option. This will allow you to extend the term of your cover, later on down the line, without being asked for evidence of your health. In other words, when you are older and possibly in worse shape. For the non-smoker, adding this option will increase the monthly premium to approximately €19 – so an increase in roughly one euro. This is a no brainer in terms of value for money. For the smoker, adding the conversion option will increase the monthly cost by approximately €2 per month – still excellent value and all the more important for smokers.
If you have cover in place, you should review the level and terms & conditions for the policy, so that you know exactly what you have and how it would benefit your dependants if the worst were to happen.
If you have no cover in place and you would like to explore your options, you should talk to Milestone Advisory today to find the best cover for you.