Mortgage Protection Q

J

JimmyCorkhill

Registered User
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42
Hi,

Required to take out mortgage protection (we are a couple) as part of a mortgage drawdown & I just had a couple of general questions to help me understand it better.

Entered details on bonkers.ie and they gave me a few different options.
Cheapest for a Dual Policy is Zurich & Royal London at around 30 euro p/m.

Q1. It says monthly premium will not change throughout the term of the policy (25 yrs). Why would the monthly premium not reduce at least annually if the value of the mortgage woild decrease over time?

Q2. Dual v Joint Policy. It seems for a joint policy you only get paid out on the first person to die (if that happens) over duration,whereas, Dual says it will pay out on both deaths, so essentially pay out twice. Do they pay out the original value of the mortgage or what is outstanding at the time of the death? If for a Dual Policy they pay out on the first death, presumably that clears off the mortgage, if the second person dies 5 years later do they pay out the same amount as the person who died first?

Q3. I havent gone any further than the quotes but further on in the steps do you need to declare any ongoing illness (migraines for example) or anything like that?

Q4. It seems there may be an option to add Serious Illness Cover, is that generally worth adding to mortgage protection policy?


Thanks
 
Q1 - all MPP policies have constant premia

Q2 - you can choose between decreasing cover or level cover.

Decreasing cover drops in line with the mortgage balance.

Level cover means the payout is the original mortgage amount, meaning a lump-sum for the surviving spouse

Rest of Q2, I'm not sure.

Q3 = yes

Q4 = up to you, but the general advice on AAM is no.
 
All the answers as above however on the rest of Q2 question, now you'd need to double check this with policy provider but my understanding is that assuming you go with the decreasing option where the amount goes down in line with the mortgage then the policy would pay out on second death what the mortgage would have been at had it not been paid off.

The amount being paid out does not actually track the mortgage exactly, the policy payments are invested and will hopefully for the insurance company make money every year, with this they guarantee to pay off the outstanding mortgage amount at any given time during the term based on what should be owed/the original term/repayments, there are computer programmes obviously that tell them exactly what this amount would be throughout the term. The only variable is the rate and that is allowed for in their assumed rate of investment on the policies.

This means that if mortgage holders dies in year 7 month 6 for example they pay off what is owed assuming all payments have been made on time and they know that from their charts and not necessarily from what the bank balance is, for example if you had missed two years of payments for whatever reason then the arrears would not be covered by the payout, just what should have been owing.

As I said double check all this but this is what we were given to understand when trained but that is a good few years ago and things may have changed.

I always recommended people went for dual cover as it was only pennies extra but came across a couple of cases that when the mortgage was paid off by the first death payout the direct debit/payment for the mortgage protection got cancelled too in the tidy up of affairs! This obviously defeated the purpose of having the dual cover and left the second person having to take out a new policy if required. Level cover is better too however is obviously more expensive but has the advantage that the amount paid out remains constant during the term.

Also re your Q1 I can see why you think it should go down as the balance does but the company has basically averaged it out over the term so that they charge the same amount for the full term, the alternative would be if you wanted it to go down with the outstanding balance is that you would be starting from a much much higher monthly premium which most people taking out a mortgage don't want, it wouldn't be the 30pm start you have been quoted! Nothing to stop you shopping around in years to come to see if you can do better.
 
I would get a quote between level and decreasing. If not much in it take a dual level convertible policy. Add a second policy for personal cover, life cover if you don’t have enough through your employer and as much specified illness as you can afford, it is expensive. The Irish Cancer Society recommend at least 25k. Also get income protection if you can.
 
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