Mortgage protection + serious illness cover or income protection

[berry87]

Hi,

My partner and I (32 & 33) are in the process of getting a mortgage for a house purchase. Our broker recommended mortgage protection + serious illness cover (~€175 per month), which we took out this week. I've since been doing some more research and wonder is there a better way of structuring the various insurances. I understand I have a 30 day cooling-off period to change.

Our policy is for the full amount of the mortgage, assigned to the bank. I've since read a suggestion that it's better to assign the minimum cover required to the bank. i.e. take out Mortgage Protection alone (Have been quoted ~€30 per month) and assign that to the bank to fulfil mortgage criteria.

Thinking it through a bit more now, it seems there is no need to fully pay off the mortgage in case of serious illness, as long as the mortgage is being paid, so it might be better to replace the serious illness cover with Income protection for both of us (possibly to pay out the expected mortgage payment) - this would cover the burden of the mortgage. (Combined quotes of around €65 for myself and partner).

I feel like this would mitigate the majority of the risks, and save ~€1,000 / year. Then we can, in the near future, set up a more appropriate life / standalone serious illness cover for a more appropriate amount to provide additional comfort in case something happens, independent of the mortgage.

I just wanted to get some feedback in case I'm not thinking about this correctly.

Thanks

 

[LDFerguson]

While Income Protection and Specified Serious Illness cover both have value, I've always felt that if it's an "either/or" choice, I'd go with Income Protection every time. Specified Serious Illness covers you for a finite list of illnesses and conditions. Get one of the listed conditions and you get a lump sum paid out. Income Protection covers you for any condition that renders you incapable of carrying your occupation for longer than the waiting period. There's no fixed list of conditions. So Income Protection is far more comprehensive in terms of the possible conditions that could give rise to a claim.

Don't forget also that Income Protection premiums qualify in full for tax relief at your highest rate. Specified Serious Illness premiums do not.

To be fair, if one of you got one of the Specified Serious Illnesses, the mortgage would be completely cleared off. If you get an Income Protection claim, you "just" get an ongoing income for as long as you're incapable of working. But my thinking on that is if you are capable of going back to work after an illness, then you can pay the mortgage out of salary anyway.

Regards,

Liam
www.ferga.com

 

[Alkers86]

As above and we did the exact same as your proposing - insured the outstanding mortgage only assigned to the bank which is then relatively inexpensive, then took out income protection insurance separately, which attracts tax relief so is also quite affordable. Combined significantly less than the figure quoted in teh OP

 

[Steven Barrett]

I agree with Liam.

Basic mortgage protection to satisfy the bank's requirements. Income protection is more important than serious illness as it will pay you a regular income until the chosen retirement age or you return to work. Also, serious illness is one payout and that's it. IP continues after you've returned to work, so you can claim again if something else happens to you.

All your future plans in life depend on you being able to earn an income. It's worth insuring it.

Steven
www.bluewaterfp.ie