Mortgage Protection Insurance in Ireland: How Does it Work?
Mortgage protection insurance is a type of life insurance that guarantees to pay off your mortgage should you pass away during the term of your mortgage. It is a legal requirement when applying for a mortgage and will cover the full loan amount. Mortgage protection insurance is different to life insurance in that it protects the borrower and the lender, in this case the bank, as opposed to your beneficiaries who are protected by a life insurance policy.
What is Mortgage Protection Insurance?
Mortgage protection insurance is designed to pay off the outstanding balance on your mortgage in the event of your death. It runs for the length of your mortgage and will pay off the remaining amount owed should you die unexpectedly.
As insurance, it protects the borrower and the lender, in this case the bank, should you be unable to pay off the mortgage due to an untimely death. Life insurance on the other hand is designed to protect your beneficiaries.
There are different types of mortgage cover that you can get:
- Reducing term cover:
This is the most common and cheapest form of mortgage protection. The amount that this policy covers reduces as you pay off your mortgage, and the policy ends when the mortgage is paid off. Your premium does not change, even though the level of cover reduces. - Level term cover:
The amount you are insured for doesn't change for the duration of the mortgage. If you die before your mortgage is paid off, the insurance company will pay out the original amount you were insured for. This will pay off the mortgage and any remaining balance will go to your estate.
Is Mortgage Protection Insurance Compulsory?
Yes. Having mortgage protection insurance is a legal requirement when applying for a mortgage, and mortgage lenders won’t approve a mortgage for an individual without it.
The lender is required by law to ensure that you have enough financial protection to pay off your mortgage before approving it.
It also guarantees that your dependents can continue to live in your home should you die unexpectedly, offering you peace of mind.
You do not need to take out mortgage protection insurance from the same bank as your mortgage, and are free to shop around for a cheaper quote.
Are There Any Exceptions?
In certain circumstances, the mortgage lender may decide that mortgage protection insurance is not required for you:
- If you are over 50 years old.
- The mortgage is not for your own private home (second home).
- Your life insurance policy is sufficient to pay off your mortgage.
- You are not eligible due to a diagnosis of a serious illness or dangerous job.
- Most lenders will insist that you take out mortgage insurance, regardless if you qualify for an exemption.
If you choose not to take out mortgage insurance, and you die unexpectedly, the responsibility of paying it off will pass to the joint owner or beneficiaries as there will be no insurance to pay for it.
How Much is Mortgage Protection Insurance?
Mortgage protection insurance can cost as little as €10 per month.
The final cost will depend on various factors, including:
- The size of your mortgage.
- Your age.
- Your health status.
- Whether you want single life cover for just you, or joint life cover for you and your partner.
- The type of policy – reducing term or level term. (Reducing term being the cheaper)
- Where you buy your policy.
- Whether you are a smoker or non-smokers.
To give an idea of how much your monthly premium could be, below you'll find a comparison between some of Ireland's leading insurance agencies:
| Company | Cost |
|---|---|
| Royal London | €17.61 |
| Zurich Life | €17.95 |
| New Ireland Assurance | €17.96 |
| Irish Life | €20.97 |
| Aviva | €21.13 |
Figures are based on a couple in their early 30s with a mortgage valued at €200,000 over 30 years and are for illustrative purposes only.
Last Updated: October 2024
Don't Omit Important Details
It's vitally important that you answer all questions on your application truthfully. Failure to disclose certain details that could raise the cost of your insurance could result in your claim not being paid out and your policy cancelled. You may also find it difficult to get over elsewhere.
Which Companies Offer Mortgage Protection Insurance?
Several insurance companies and banks offer mortgage protection insurance, including:
- Aviva
- Vhi
- Laya Life Insurance
- Irish Life
- New Ireland
- Royal London
- Zurich
- AIB
- Bank of Ireland
We recommend speaking with an insurance broker before deciding on a policy to make sure you get the best cover possible for you and your home.
What Does Mortgage Protection Insurance Cover?
There are some additional features that are included in mortgage protection policies, in addition to paying off your mortgage in the event of your death.
Automatic benefits that may differ from company to company include:
- Guaranteed insurability:
You can increase the level of cover or extend the term following certain changes in your life without giving additional medical evidence, e.g. if you have a child, marry or buy a new house. - Accidental death:
This provides temporary cover for the time between when you submit your signed application and direct debit details, up until your application is approved or declined. If you were to die during this period, a lump sum would be paid out. - Children’s life cover:
If your child dies during the policy term and is between 3 months and 18 years old (or 21 if in education), a fixed amount will be paid, usually between €4,000 and €7,000. - Terminal illness cover:
If you’re diagnosed with a terminal illness and have less than 12 months to live, payment in full will be made at that time.
Are There Any Add-Ons?
The main add-on to mortgage protection insurance is serious illness cover. Serious illness cover lets you choose a lump sum equal to up to 100% of mortgage protection cover, which will then be paid out in full if you are diagnosed with one of the illnesses listed in your policy agreement.
Can I Be Denied Mortgage Protection Insurance?
While most health conditions and illnesses can be covered as part of a mortgage protection policy, there are some incidences where you could possibly be denied cover:
- Diagnosis of a terminal illness
- A person with multiple risk factors such as obesity combined with smoking and severe heart disease or diabetes.
- An individual showing repeated episodes of self-harm
- People who are diagnosed as alcoholics or display signs of very high levels of alcohol consumption
- Gross obesity, i.e. Body mass index or BMI over 45.
- The applicant has a condition that is still under review and no diagnosis has yet been confirmed.
- Travel to dangerous locations where risk of injury and or death are high.
- Certain extreme sports.
Cancer Survivors and Mortgage Protection Insurance
Since 2023, insurance companies that provide mortgage protection can ignore your cancer diagnosis if your treatment finished more than 7 years ago, or more than 5 years if you were diagnosed when you were under 18. This covers you if you are applying for insurance cover of up to €500,000.
When Should I Change My Mortgage Protection Insurance?
As with other types of insurance such as home, car, health etc. It's a good idea to review your policy every year to see if you can find a cheaper deal on the market.
In the case of mortgage protection, if you have made any improvements to your lifestyle, in particular you have given up smoking in the last year, then it's worth shopping around for a new quote.
In addition to this, many insurance companies often offer discounts to new customers, meaning you can save even more on your policy.
Mortgage Protection Insurance FAQ
Is Mortgage Protection the Same as Life Insurance?
No. While both are designed to offer financial protection in the event of your death, there are some differences between the two.
Mortgage protection insurance protects you and the bank from the financial risk of you defaulting on your loan in the case of your unexpected death.
A life insurance policy pays a lump sum to your dependents should you die, with the lump sum remaining the same throughout the duration of your policy.
Do You Have to Take Out a Policy With Your Mortgage Lender?
No. While most banks will offer you their own mortgage protection insurance, you are not obligated to take out a policy with them and are free to shop around for a cheaper quote.
Can I Use an Existing Life Insurance Policy for Mortgage Protection?
Yes. If the amount you are insured for is equal or greater than that of your mortgage, then you can use your existing life insurance. However, were you to die towards the start of your policy, the majority of the lump sum will go towards your mortgage, leaving little for your dependents.
Can I Switch my Existing Mortgage Protection Policy?
Yes. You are free to switch to a new policy, potentially saving you thousands of euros per year. You are required to submit a new application including a possible GP report depending on the extent of what you want your policy to cover.
Can I Cash In My Mortgage Protection?
No. Mortgage protection is designed to pay off your mortgage if you die, not to provide a cash sum to your dependants. If you want to provide a lump sum for your family, you'll need life insurance.
Can I Cancel My Policy If I Pay Off My Mortgage Early?
Yes. If you pay off your mortgage early, you can cancel your mortgage protection policy. You might consider continuing to pay into your policy towards a lump sum that will then be paid out to your dependents upon your death.