Mortgage (life) protection

Mortgage protection is a policy that pays off your mortgage if you die and runs for the same length of time as your mortgage.

You are usually legally required by a lender to take out such a policy when you get a mortgage.

If you die, the insurance company pays the policy out to the lender, who uses it to pay off the mortgage. If you are a joint mortgage holder with your partner, the insurance will pay off the mortgage if either one of you die, although make sure both of your names are on the insurance policy too.

How much you pay depends on the size of your mortgage, the term, your age, gender, the state of your health and whether you smoke.

The premium you pay is fixed, but to keep the cost low the product is usually structured so that the cover reduces over a chosen period of time by a specified interest rate, usually in line with your mortgage.

You may be offered the option of adding serious illness insurance to your mortgage protection policy for an additional premium, which also reduces in line with your mortgage.

This means that if you are diagnosed with a serious illness (as opposed to dying) your mortgage will be covered.

Mortgage (repayment) protection

They have irritatingly similar names, but mortgage repayment protection (MRP) is a different type of product to mortgage life protection.

This product is designed to cover your mortgage repayments if you cannot work due to compulsory redundancy, illness or disability.

One of the advantages of this product is that it's easy to take out and there is no need for a medical, and that anyone can access them no matter what their occupation.

This is the only policy that provide any cover in the event of redundancy.

 MRP has been widely criticised for being expensive and hard to claim when the time comes. It is often recommended that you consider other insurance products, such as income protection or serious illness cover instead.

In addition, if your employer has a sick pay scheme, MRP may not be necessary.

Premiums have risen strongly since 2009.  The Bank of Ireland now charges €6.40 per €100 of mortgage repayments for disability and redundancy cover, which equates to a premium of €76.80 per month on a monthly mortgage repayment of €1,200.

Other disadvantages to MRP policies are that they typically pay out continuously for a period of only 12 months, and that premiums are usually reviewable ie. providers can raise premiums at any time after a minimum notice period.

Information correct as of 20th May 2010