Insurance protection on mortgages
When taking out a mortgage, you need to consider how it will be paid off in the event of your death. You may also consider how to continue repayments if your income falls, due to illness, unemployment or other reasons.
‘Mortgage protection’ insurance is designed to pay off your mortgage in full if you die before the mortgage has been fully paid. ‘Mortgage repayment protection’ insurance is designed to cover your repayments for a period in certain circumstances.
Mortgage protection insurance
When you get a mortgage to buy your home, you will generally be required to take out mortgage protection insurance. This is a particular type of life assurance taken out for the term of the mortgage and designed to pay it off on the death of the borrower or joint borrower.
In most cases, the lender is legally required under Section 126 of the Consumer Credit Act 1995 to make sure that you have mortgage protection insurance before giving you a mortgage, with some exceptions – see ‘Exceptions to legal requirement’ below. However, if the lender offers a particular policy, you are not required to buy it. You can shop around for a mortgage protection policy that suits your needs. Your lender cannot refuse you a mortgage because you don't buy the policy it offers.
Mortgage protection should be payable on a joint life, first death basis. This means that the mortgage is repaid on the death of the first borrower if a couple is involved.
It is important to review your mortgage protection policy regularly and ensure that you take out additional cover, if necessary, to cover extensions of the mortgage term or any penalties incurred. You must keep the premiums up to date. If you go into arrears, the policy may lapse.
The Competition and Consumer Protection Commission publishes detailed information on mortgage protection insurance.
Exceptions to legal requirement
You do not have to take out mortgage protection insurance if:
- You are aged over 50 or
- The mortgage is not on your principal private residence (your home) or
- You cannot get the insurance, or can only get it at a much higher premium than normal or
- You already have enough life insurance to pay off the home loan if you die
However, some lenders may insist that you take out mortgage protection insurance as a condition of giving you a mortgage, even if there is no legal requirement in your case.
Mortgage repayment protection insurance
Mortgage repayment protection insurance is usually optional. It is a type of payment protection insurance that is designed to repay your mortgage for a certain amount of time – typically 12 months – if your income is reduced because you have an accident or are made redundant, or for any other reason covered by the particular policy.
You should check with your mortgage lender or insurance broker or insurance company if you are uncertain about whether you have mortgage repayment protection insurance. You should also check exactly what it covers and ensure that it suits your situation.
The Competition and Consumer Protection Commission publishes detailed information on payment protection insurance in general.