Tuesday 25 October 2016

Charlie Weston: Massive savings to be made from switching mortgage protection

Massive savings to be made from switching mortgage protection for a better deal, yet few make the move so are missing out big time

Published 23/06/2016 | 02:30

Annuals savings of more than €600 are possible by seeking out a better mortgage protection deal
Annuals savings of more than €600 are possible by seeking out a better mortgage protection deal

One of the biggest savings a household with a home loan can make is to switch to a better-value mortgage protection policy. Yet few people, if any, move provider.

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That is great for banks and insurance companies that are continuing to collect from over-priced policies.

However, monthly savings of almost €53 are possible by seeking out a more competitive deal, according to the State body put in place to promote consumer interests, the Competition and Consumer Protection Commission.

These savings work out at close to €635 over a year - a considerable amount of money for most households.

Mortgage protection is something you take out when you are putting a mortgage in place, and the lender will insist on it.

The policy is designed to clear the balance of the mortgage when either of the policyholders dies.

It's normally done on a "joint life, first event" basis which means that if two people take out the policy and die simultaneously it only pays out once and the sum is usually engineered to cover only the balance of the loan.

It does this because it's created as a "decreasing-term" policy, which means the amount it pays out decreases over time, the same as your mortgage does as you pay it.

It has a set term, in line with the mortgage term, according to Karl Deeter of Irish Mortgage Brokers.

So if you take out a mortgage for €250,000 over 25 years then this policy should track it fairly closely, so that if the policy holder or holders die the mortgage is cleared.

Typically, it's the cheapest type of life insurance because the risk of death increases over time, but the amount paid out decreases.

As well as this, only one life is really being covered even though many couples have this type of insurance.

The problem is that home buyers are tempted to buy mortgage protection insurance off their bank when they take out their mortgage. This is a bad idea as the bank usually only offers a policy from just one insurer that it has a deal with.

The bank will not research the full market for you. This lack of full market research means you might not be getting the best value, Mr Deeter says.

The other big issue is the fact that the cost of mortgage protection has fallen hugely due to people living longer, which means insurers pay out less often.

And there is now more competition in the market.

Sometimes the payment is mixed in with your mortgage payment and this means if you miss mortgage payments that your insurance can lapse too, meaning if a person goes into arrears and then dies, their mortgage might not be paid off.

If you want to save money and get a cheaper policy, your best bet is to contact a broker.

Try LABrokers.ie, which tends to be particularly good value.

Get quotes, see what the best price is, determine if you are happy with the price offered and then fill out the forms and return them.

You may need to make a call prior to doing this to your bank to see what process is required for you to assign the policy.

This is because when you take out a mortgage the insurance is taken out by you, but owned by the bank.

Most of the banks have a form that you have to fill out to assign the new policy. Get one sent out to you.

There is also the issue of some banks grouping the insurance with the mortgage. These can be tricky to change so inquire about what you need to do to cancel the policy you were sold and replace it with a better one.

Irish Independent

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