Mortgage protection v life insurance

Hi,

We are trading up and we've just started looking at mortgage insurance and life insurance.

Details:
Me 34 yo salary 100k and likely to increase to 200k over next 5 years.
Wife 33 yo salary 58k.
Children: One on the way!
New mortgage circa 650k for 35years.

I was very happy with just mortgage protection on our current house as we had no dependents however this is about to change with a child on the way.

Is there any advantage to buying life insurance alone say for 850k (mortgage 650k plus 200k to surviving spouse) over buying separate products (mortgage protection of 650k and then life insurance for 200k).

One disadvantage I can see from buying life insurance alone is that after a few decades I think we will be significantly overinsured eg if we have a mortgage of just 100k left and life insurance for 850k.

I find the whole area a bit of a minefield so any pointers much appreciated. Also any advice on duration of life insurance would be much appreciated but I assume the ideal is just to match the mortgage duration.

I will look at income protection too but will likely buy this separately once we're settled in the new house.

smndly said:

One disadvantage I can see from buying life insurance alone is that after a few decades I think we will be significantly overinsured eg if we have a mortgage of just 100k left and life insurance for 850k.

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I don't see that as overinsured.

If you die aged 54, €750k and the house paid for will not look like overinsurance to your wife and kid(s).

Also buy level term insurance.

You will really only need any sort of insurance for the next 5 to 10 years.
With the incomes you are on, you will have significant assets and so if one of you dies, say when you are 44, the other will be in a good financial position.

so take out a reducing balance mortgage protection policy - definitely not very expensive level term, if that is what Cremeegg is suggesting.

In 20 years time, you will definitely not need €650k worth of life insurance. Enough to pay off the mortgage will be plenty.

In reality, you will probably have cleared the mortgage by then anyway. You can make a call at some later stage whether you still need it or not.

Brendan

Thanks for the input.

So what I'm considering is taking a reducing balance dual life cover mortgage protection option to cover the duration of the mortgage ie 35years.

Then a separate dual life cover life insurance policy to ensure a lump sum is paid if one of us dies. Probably make this 25years to cover until our child has finished education.

Does that make sense or is it too complicated? Also I wonder if having two policies means I'll have to spend a bit more overall rather than get a package deal scenario of having it all in one.

I would take out two joint life policies. One a mortgage protection that will be decreasing in cover as your mortgage decreases. This policy will be assigned to the bank and they will have first call on the sum assured should anything happen yourself or your partner. This is relatively cheap life assurance on the norm.

The second policy would again be joint life, level term assurance. The main purpose of this would be to provide a lump sum, (sum assured), for yourself or your partner should either of you die before the expiry date of the policy. The sum assured remains level throughout the term of the policy. The lump sum payable on death of one can be a great relief to the other.

These policies are normally written to age 60 or 75 but you can pick any term you wish.

Life Assurance is so important in my opinion. Keep it simple and hopefully to will never need to call on it.

So the big risk is the next 10 years. While you are less likely to claim, you will have less wealth.

So decreasing cover mortgage protection.

And maybe €200k of additional cover but only for 10 years.

After that, you will be wealthy enough if one of you dies.

Brendan

That's great glad I asked as I thought it was a bit mad splitting the insurances but it seems to make sense to do so.

I think I will look at the additional life insurance cover for 20 years as if I die the sudden loss of my income would be significant and most of our wealth would be tied up in the house so not accessible.

Is there any mechanism/benefit to move my current mortgage protection policy to the new house we’re trading up to I wonder acknowledging that the cost will increase as it’s a larger mortgage?

In my experience it is unlikely you can up the life cover on your current mortgage protection and/or extend the term, but you could ask.

Upping the cover or changing the term will invariably lead to new underwriting so basically applying again so you can but you may as well shop around if you have to do the paperwork anyway, you might improve on your present providers quote for the new cover or might not!

smndly said:

Is there any mechanism/benefit to move my current mortgage protection policy to

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Could you keep that as the "extra life insurance" you are looking for?

Get a quote for a separate policy for 20 years.

But you might well find that the existing policy is cheaper as you took it out when you were younger.

Brendan

Do you have death in service through your job?

I’ll ask my provider if I can change my current mortgage protection to the life insurance that’s a great idea. Also it will avoid me paying any clawback I might be liable for to the broker.

We both have death in service yes. Does that change what should be done in this case?

smndly said:

I’ll ask my provider if I can change my current mortgage protection to the life insurance that’s a great idea.

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You don't need to ask them anything.

Mortgage Protection is simply life assurance which is assigned to your mortgage company. If you no longer have that mortgage, then the policy is no longer assigned.

They are separate products and otherwise unrelated.

smndly said:

We both have death in service yes. Does that change what should be done in this case?

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The death in service is just like life insurance. If you think you need €200k on top of the mortgage amount, but the death in service is €300k, then you don't need life insurance.

Brendan

I'd suggest Dual Life Level Term insurance (with Conversion selected) to the tune of your mortgage should be sufficient. I don't see any need for you to take out a separate second policy. It covers 2 death with potential maximum pay out of 1.3mil (650K each). Don't forget, you and your spouse both have death in service cover which is normally multiples of your salary which will increase over time.

In addition, since you mention that your salary is expected increase up to twice your current salary in the next 5 years, chances are you will probably make some form of overpayment. Even if you pay off your mortgage early, as long as you keep paying your monthly premium Dual Life Level Term insurance after your mortgage ends early, the cover is still valid, by that stage it is effectively your second life insurance you are thinking of (Think of it like a balancing scale, as you pay more off your mortgage on one side, the more life insurance cover increases).

Dual Life Level Term isn't that much more expensive compared to Reducing Balance (in my case) so I'd suggest you check both before ruling it out. Personally in my opinion, the cost is very low versus potential benefit should the worst case happen (Not that me or my wife wish to die). In my case my Dual Life Level Term (with conversion) is €30.66 per month and covers 2 person up to €406K (total, 2 x €203K) for 30 years.. That works out to about €11K over 30 years. To me that was a no brainer kind of situation.