A lender cannot be named on a life insurance policy, including a mortgage protection life insurace policy. They can only be named on a house/property insurance policy. A lender can only take an assignment over a life insurance policy. The two are regularly mixed up.
To answer your questions: -
1) What does AIB being "named" mean in practice?
This will only happen on a property ("Buildings & Contents") insurance policy. I'm not a property insurance broker, but I think it means that the lender has to be notified of any claims above a certain size.
2) Is it the same as being "assigned to AIB" ?
Only a life insurance policy is assigned to a lender. Customer completes a Deed of Assignment and hands it over to the lender with the life insurance policy. The Deed of Assignment states that AIB have first claim over any proceeds of any claim on the policy.
3) If I die tomorrow, does Irish Life pay the money directly to AIB or do they pay it to my estate who will then pay off AIB?
If there's an assignment, Irish LIfe will pay the proceeds directly to AIB.
4) Can I just tell Irish Life to remove AIB's name from my policy?
If AIB no longer have any reason to hold your Irish Life policy (e.g. if you've paid off your mortgage) then you can ask AIB to issue a Deed of Reassignment or a letter of no further interest in the policy. Once they do this and it gets to Irish Life, Irish Life will note it on their records and the policy can just continue as a "normal" life insurance policy that would be paid to your estate if you died.
5) If I can't afford my mortgage protection and just stop paying it, what happens?
As Bronte says, if there's an assignment, Irish Life will write to AIB telling them that you've stopped paying. AIB can write to you reminding you that it's a condition of your loan offer that you maintain life insurance cover at all times. They will insist that you reinstate your policy or start a new one. But what can they do really?
As it's a breach of your loan offer conditions, I suppose in theory they could throw you off a tracker or even call in your loan, but I've never heard of a bank going to those lengths just because someone cancelled their life insurance. The customers get a few strongly-worded letters and that's it.
