In this edition of Construction Magazine, Darragh Hogan looks at the difference between life and mortgage protection. 

A property is probably one of the largest and most personal investments you will ever make and as such, you will want to ensure both your investment and your dependents will be protected should you pass away prematurely.

How much cover will you need and what will it cost? What type of cover is best? The cheapest quote may not provide the most suitable cover, but what is the right level of cover?

I believe that good advice leads to better decisions and peace of mind. When it comes to protecting your assets, talking to a financial adviser will help you make sense of the myriad of products; the factors that affect the various levels of protection required and remove unhelpful jargon. This way, you can focus on securing the level of cover you actually need as opposed to paying over the odds for insufficient protection.

There can be some confusion between Mortgage Protection and Life Insurance. The differences between them are both important and very distinct. I have outlined some of the main points below.

Mortgage Protection:

  • Decreasing term cover to pay off the mortgage in event of death.
  • Death benefit paid to the mortgage provider.
  • The sum assured reduces over the period of the cover. As can be expected, this cover is cheaper than level term insurance.
  • Best-suited to those who only want to cover a specific mortgage debt.
  • Lenders will insist that you have a life insurance policy in place before offering you a mortgage.

Life Insurance:

  • Level term life insurance: This pays out a fixed lump sum to your dependants should you die within the term of the policy and can be used to pay household bills and other day-to-day living costs.
  • Increasing term life insurance: Similar to level term insurance, this pays out a lump sum to your dependants if you die within the term of the policy. However, unlike level term insurance, the amount of cover rises over time to help protect your policy’s value against inflation.
  • Whole of life cover: Unlike term insurance, which will only pay out if you die within a specified period, whole-of-life insurance is designed to run for the remainder of your life. This means that, so long as you keep paying your premiums, the beneficiaries are guaranteed to receive a pay-out when you die.
  • Death benefit paid to the beneficiaries. Level Term/Whole of Life can be assigned to the bank for a portion to pay off the mortgage while the balance would be paid to the beneficiaries.
  • Level Term/Whole of Life policies are a good option for people who want to ensure the financial protection of their families after they pass away. With these policies in place, you can guarantee that your loved ones will be paid a set amount of money and maintain their standard of living should the worst happen.
  • If you would prefer to have a policy that pays out enough to cover the mortgage and leave additional funds to cover other expenses, level term life cover would be more suitable than decreasing mortgage protection.

Review, Revise and Renew

Your needs will change as you go through life and everyone’s situation is different. When working out how much cover you require, it may be helpful to figure out how much money you or your family would need each month if you were unable to earn an income. As your family expands or ages, you may wish to amend the cover to ensure it is still suitable.

When purchasing a house, your mortgage provider will insist that you have protection in place, but contrary to popular belief, you do not have to take out mortgage protection with your provider. This might also serve you if you decide to move mortgage providers in the future.

It is worth noting that the older you are when you take out life insurance, the more expensive it will be. There are no savings to be made by delaying this type of cover. The rationale behind the more expensive cover is based on the greater risk of a claim being made – not only are your older, it is also more likely you will have health issues. As a result, it can pay to take out life insurance while you are young.

For further information, contact Darragh Hogan in Milestone Advisory via email (Darragh@milestoneadvisory.ie), or phone (01) 406 8020.

Milestone Advisory DAC t/a Milestone Advisory is regulated by the Central Bank of Ireland.