Business Personal Finance

Sunday 21 October 2018

New lease of life

If you haven't repriced your mortgage protection recently, chances are you're overpaying, writes our finance editor

Photo posed
Photo posed
Charlie Weston

Charlie Weston

You would be forgiven for assuming that the costs of all forms of insurance are going up all the time.

Motor, health and home cover costs have been rising recently, with motor insurance going up at a wallet-wilting rate.

But not all insurance costs are going up.

Life insurance, which includes mortgage protection cover, has become cheaper in the last few years.

The fact that we are living longer, healthier lives has resulted in insurers cutting the cost of premiums.

This means it makes sense to check out what you are paying now for your mortgage protection cover, especially if you have not reviewed it since you took out your mortgage.

Mortgage protection insurance is a type of life insurance policy you take out when you sign up for a mortgage: it will repay the mortgage in the event of you and/or your spouse's death.

The cover typically lasts until the mortgage is fully paid.

Your mortgage provider will require you to have life cover.

The mistake many people make is that they take their cover out with the bank they got their mortgage from, a situation which often means they get bad value.

You do not have to take out that life cover with your mortgage provider and are free to look elsewhere for a better rate.

But half of homeowners pay over the odds for mortgage protection cover, according to a recent survey.

The survey found that one in five people buying a house get mortgage protection cover through their lender to "appease them".

Also, some 54pc of mortgage holders haven't repriced their mortgage protection cover in the last three years, according to the survey commissioned by financial services firm Clear Financial.

Willie O'Leary of Clear Financial, says: "Thousands of people could be missing out on lower rates on their mortgage protection policies.

"If you haven't repriced your policy in several years then chances are you are overpaying. We would estimate that new premiums for many homeowners have lowered by 15pc to 20pc over the last five to ten years.

"Reviewing your personal finances periodically is key to effective and efficient financial planning.

"With mortgage protection, this is particularly important because market competition means that rates change frequently, so there's often potential to save."

Mr O'Leary says it is important to keep an eye on the changes in the market, or changes in your circumstances in order to get the best deal on a mortgage protection policy.

For example, as with other life cover products, those who don't smoke will benefit from cheaper cover.

All of this means it is well worth your while getting an insurance broker to re-quote you. Alternatively, go online to LABrokers.ie, which operates on an execution-only basis and is therefore very competitive, and get a better quote.

LABrokers.ie typically offer sdiscounts of at least 24pc and up to 37pc off each and every premium for the life of the policy compared with the insurers' advertised rates.

Switching means completing a new application form, and there may be a GP's report or a medical examination, depending on the level of cover involved. For most people, this is straightforward.

The only complexity is that your policy is most likely 'assigned' - that is, the bank has ownership of it. The reason is that if you were to die prematurely, then they get the money, rather than it becoming part of your estate.

Assignment is a legal process, but as long as the bank has a policy against your loan, it should be of no concern to them with what firm it is placed. However, often lenders themselves sold the policies as part of the mortgage so they may resist you changing it. This is not allowed, and is called 'conditional lending'.

So, stand firm and just make sure that the new, cheaper policy is in place before you cancel the old one to ensure there's no gap in cover.

How to switch mortgage protection...

Step 1

Find out what’s left on your mortgage, amount and term.

Step 2

Ask a broker to quote you for mortgage protection for this.

Step 3

Complete the application forms and have the policy underwritten and a direct debit completed.

Step 4

When it is in place, write to your old insurer and the bank, cancelling the existing policy and outlining the new one to put in its place.

Step 5

Complete the new assignment form for the bank.

Total time: 3 hours

Potential savings: €240 a year

Indo Review

Business Newsletter

Read the leading stories from the world of Business.

Also in Business