Insurance protection on mortgages
When you get a mortgage to buy your home, you need to consider how it will be paid off if you die. You should also consider how you will make your mortgage repayments if your income falls, due to illness, unemployment or other reasons.
There is insurance to cover these situations:
- Mortgage protection insurance pays off your mortgage in full if you die before the mortgage has been fully paid
- Mortgage repayment protection covers your repayments for a set amount of time in certain circumstances
You must take out mortgage protection insurance when you get a mortgage, except in certain circumstances, see below. Mortgage repayment protection insurance is usually optional.
What is mortgage protection insurance?
When you get a mortgage to buy your home, you will generally need to take out mortgage protection insurance. This is a particular type of life assurance that is taken out for the term of the mortgage. It pays off the mortgage if you, or someone you have the mortgage with, dies.
The lender is legally required to make sure that you have mortgage protection insurance before giving you a mortgage. There are some exceptions to this, see below.
If your lender offers a particular insurance policy, you do not have 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 paid on a joint life, first death basis. This means that the mortgage is repaid when the first person dies if you are a couple.
You should review your mortgage protection policy regularly and ensure that you take out additional cover, if necessary. For example, you may need additional cover if you extend the term of your mortgage. You must keep your payments up to date. If you go into arrears, the policy may lapse.
The Competition and Consumer Protection Commission (CCPC) publishes detailed information on mortgage protection insurance.
Exceptions to the legal requirement to have mortgage protection insurance
You do not have to take out mortgage protection insurance if:
- You are over 50 years old
- The mortgage is not on your principal private residence (your home)
- You already have enough life insurance to pay off the home loan if you die
- You cannot get this insurance, for example, because of a current serious illness or dangerous job
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.
If you die without mortgage insurance protection, there will be no insurance policy to pay off the mortgage. This means that the joint owner or your beneficiaries will have to continue repaying the mortgage.
The requirement to take out mortgage protection and the exemptions to this are set-out in Section 126 of the Consumer Credit Act 1995.
Mortgage protection and cancer survivors
Since, 6 December 2023, a code of practice on mortgage protection insurance for cancer survivors applies. This means companies that provide mortgage protection insurance can ignore your cancer diagnosis if your treatment finished more than 7 years ago, or more than 5 years if you were diagnosed when you were under 18. The code covers you if you are applying for insurance cover of up to €500,000.
Types of mortgage protection insurance
There are different types of mortgage protection cover. For example, you can get:
- Reducing term cover: The amount that this policy covers reduces as you pay off your mortgage and the policy ends when the mortgage is paid off. Your premium does not change, even though the level of cover reduces. This is the most common and cheapest form of mortgage protection.
- Level term cover: The amount you are insured for remains the same for the term of the mortgage. So, if you die before your mortgage is paid off, the insurance company will pay out the original amount you were insured for. This will pay off the mortgage and any remaining balance will go to your estate.
- Serious illness cover: You can add serious illness cover to your mortgage insurance policy. This means your mortgage will be paid off if you are diagnosed with and recover from a serious illness that is covered by your policy. It will also be paid off if you die. This is more expensive than other types of cover.
- Life insurance cover: You can use an existing life insurance policy as mortgage protection insurance. You can only do this if the life insurance policy provides enough cover and is not assigned to cover another loan or mortgage.
What is mortgage repayment protection insurance?
Mortgage repayment protection insurance is a type of payment protection insurance. It will repay your mortgage for a certain amount of time if your income is reduced because you have an accident or are made redundant, or for any other reason covered by the particular policy. This type of insurance is usually optional and will typically cover payments for 12 months.
You should check with your mortgage lender, 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.