What a relief? Mortgage protection more expensive than ever
Mortgage repayment protection schemes are now more expensive than ever and, according to some experts, they often contain conditions that make them unattractive, writes John Cradden
IF you are experiencing problems repaying your mortgage because of a job loss, you might be wondering if you should have taken out mortgage repayment protection (MRP) insurance.
This product is designed to cover your mortgage repayments if you cannot work due to compulsory redundancy, illness or disability.
This is a different product to mortgage (life) protection, which pays off your mortgage if you die and which usually you are legally required to take out when you get a mortgage.
One of the advantages of MRP is that it easy to take out and there is no need for a medical. Anyone can avail of it, no matter what their occupation. MRP is now the only insurance product that provides any cover in the event of redundancy.
One used to be able to get redundancy cover under some income-protection policies, but this is no longer the case.
However, as insurance products go, MRP has traditionally had something of a bad press.
One of the biggest criticisms is the cost. Even before the current mortgage-debt crisis, it was considered very expensive.
In 2008, for instance, Bank of Ireland (BoI) would have charged €4.75 per €100 of monthly mortgage repayments.
So, if your mortgage repayment was €1,500 a month, you would have shelled out €71 a month, or €855 a year just for this cover.
However, thanks to a huge rise in claims on the redundancy-cover element of these products, premiums have risen hugely in the past year.
BoI now charges €6.40 per €100 of monthly 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.
One of the main insurance providers of this product, Assurant, told brokers last June that it had to increase rates sharply because of a huge rise in claims. It now charges €7.20 per €100 of mortgage repayments for accident, sickness and unemployment cover.
In addition, it increased its initial exclusion period for unemployment cover from 90 days to 120.
Another big provider of this product, Cardif Pinnacle, had pushed up premiums by 40pc this year, before announcing earlier this month that it was pulling out of this market because of the surge in claims.
The other criticism of MRP cover, according to a number of personal-finance experts, is that it is a complex product, with onerous terms and conditions that can make it hard to claim when the time comes.
"Any breach of the terms and conditions -- which the borrower might not even be aware of and are not explained properly to them in the first place -- will mean that you are paying for something you think you are covered for but you really are not," says qualified financial advisor, Liam Croke.
He recalls talking to one woman who told him that when she went to claim on an MRP policy she had no idea who to make contact with first.
"When she did eventually make contact, she said, and I quote, 'They put me through the ringer and I eventually gave up.'"
You cannot claim on an MRP policy if you take voluntary redundancy. If you are on a temporary contract or self-employed, you may not be eligible for it.
If you have good reason to suspect that you will be made redundant in the near future, this may make it much more difficult for you to claim in the event that this happens.
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 -- providers can raise premiums at any time after a minimum notice period.
"I am wary of MRP products because of their short-term cover, the reviewable premiums and the potential problems when you have to claim," says Dermot Goode, CEO of Bestincomeprotection.ie.
He suggests that if you have a good sick-pay scheme that would pay your salary in full for six months and possibly half-pay for a further six months, then MRP isn't necessary.
Mr Goode says he usually recommends that people consider either cheaper mortgage income protection or a full income-protection cover because, unlike MRP, it pays out over a much longer term and qualifies for tax relief.
"However, for some people the MRP may suit their present needs and their pocket and it is easier cover to effect."
Of course, there are no income-protection products on the market now that provide cover in the event of redundancy. They will only pay out if you suffer an accident, illness or disability that renders you unable to work for a long period of time.
The National Consumer Agency's personal finance website, Itsyourmoney.ie, suggests saving up the amount that you would otherwise have to pay for an MRP policy into a general fund for unexpected events.