Frequently Asked Questions About Mortgage Protection Insurance

Mortgage protection insurance is decreasing life insurance designed to cover your outstanding mortgage amount. If you die within the term of your mortgage, this policy ensures that your mortgage is paid off so your family can stay in the home.

Lenders generally insist on these policies as part of their lending criteria to secure the loan. It provides your lender with assurances that the mortgage will be paid even if you pass away.

• Mortgage Protection is Life insurance. 
• A mortgage protection policy specifically covers the amount of your mortgage, ensuring your family can keep their home in the event of your death. The cover on a mortgage protection policy decreases the same way your mortgage does. 
• Cover on a Life Assurance (level term policy) does not reduce. It still provides a lump sum payment, however this can be used by your beneficiaries for any purpose.

Single: Covers one person only

Joint: Covers two people; can pay out once on first death  

Dual: Covers two people; can pay out twice on both deaths

• Age
• Smoker status
• Mortgage Amount & term
• Whether you add extras (e.g., Serious Illness Cover, Conversion)

Once you submit a proposal form to your insurer, there may be individual factors that also affect the cost

• Health & Lifestyle history
• Occupation

Specified Illness Cover (also known as critical illness or serious illness) is a type of insurance which pays out a lump sum if you are diagnosed with any of a set of specific, often life-threatening illnesses.

You may still get mortgage protection insurance, but your health & lifestyle may affect the terms and cost of your policy. When you complete a proposal form, it goes through an ‘Underwriting’ process with your insurer.  Outcomes after underwriting vary and can include:

• Acceptance at standard rates (meaning no additional cost)
• Acceptance at non-standard rates (meaning your insurer is willing to give you the cover, however it will cost you more than a standard rate quote)
• Exclusions (usually apply to Specified Illness Cover or Income Protection Cover where a particular condition is excluded from the cover provided)
• Postponement (your insurer will not make a decision at this time. This usually happens if there are test results outstanding or a medical appointment is scheduled for the future)
• Decline (your insurer is not willing to offer the cover you require)

Your lender will want your mortgage protection insurance to have a death benefit to match the term and amount of your mortgage. So typically, the right amount of cover corresponds directly to the outstanding balance of your mortgage.

You should know the interest rate on your mortgage protection insurance. The interest rate on your mortgage, should always be lower than the one on your mortgage protection insurance. When this is true, there will always be sufficient cover on your mortgage protection insurance policy to pay off your mortgage. 

If you change the terms of your mortgage, you should also review your mortgage protection insurance to ensure it still meets your needs.

If you payoff or switch to a new mortgage provider, you should review your mortgage protection insurance too. You could:

• Use your existing policy with your new lender
• Amend your existing policy to match your new mortgage (if your insurer allows this)
• Replace your existing policy to match your new requirements 
• Cancel the policy if the mortgage is cleared and you no longer want the insurance

If you remortgage, you should review your existing Mortgage Protection insurance to check if it matches your new mortgage. You could:

• Use your existing policy if it matches your needs
• Amend your existing policy to match your new mortgage (if your insurer allows this)
• Replace your existing policy to match your new requirements

Yes, you can cancel your policy. However, it’s important to understand the implications of not having protection in place and the potential added cost of getting a new policy if you are older or your health or lifestyle has changed.

No. Loss of Income is covered under a different insurance called ‘Income Protection’.

Income Protection can be put in place at any stage and can cover income in the event of illness or injury (not suitable for losing your job). It is a great benefit and gives peace of mind for you & your family if you are out of work long term due to illness or injury.  You can even cover the amount of your monthly mortgage repayment to ensure your family home is protected in this instance.   

The payout from a mortgage protection insurance policy usually goes directly towards paying off the mortgage and doesn’t typically have direct tax implications for beneficiaries. However, it’s always a good idea to speak to a tax advisor.