Mortgage Protection and Serious Illness Cover
Why You Shouldn’t Carry Serious Illness Cover On Your Mortgage Protection Policy
Serious illness cover can make a huge impact on how you and your family cope when illness strikes.
Serious illness cover allows you time to recover without added financial stress.
The lump sum payment from a serious illness policy is paid tax free to help with the loss of income and costs associated with recovery.
While drawing down a mortgage is a good time to consider your finances and what protection you may need in place, adding serious illness cover to your mortgage protection policy is not suitable in most cases. Combining mortgage protection and serious illness cover is common practice for some advisers, (usually advisers working for the bank & I imagine the aim is to streamline the process).
The first and most important reason is that your mortgage protection is legally assigned to your lender, this means any policy benefit is payable to your lender to be used against your outstanding mortgage until it is cleared. You do not want your serious illness benefit paid to the bank to reduce your mortgage when you have a number of outgoings to meet.
Imagine having an illness and €100,000 in illness cover on your mortgage protection. If you owed €250,000 on your mortgage, you now owe €150,000 -great, but what about your other bills?
If that €100,000 were on a separate policy, you are free to use the payment to continue paying your mortgage, other outgoings, and the myriad of costs associated with treatment. The €100,000 is paid in both cases, the difference is the day to day impact it will make when your family is faced with an illness.
Another impactful reason is that most mortgage protection policies are decreasing term insurance, meaning the cover in place reduces each year -you will end up with less illness cover in place as you age and are more likely to suffer an illness. You can effect cover on a level basis for the duration of the policy ensuring your cover remains adequate.
Surprisingly, combining policies does not prove to be cost effective, every one of the combined policies I have reviewed for clients is more expensive than market rates on comparable (separate) policies.
I recommend purchasing ‘bog standard’ mortgage protection to meet your lender’s requirements and adding any other cover separately.
With separate policies, you retain control over your cover & have more options available to you.
Unsure if you have the right cover for your family, or have general queries regarding the above? Email me anytime roshea@olearylife.ie
Author: Rachel O’ Shea, Protection Manager