What’s the difference between Mortgage Protection and Life insurance?

Getting a mortgage is probably one of the biggest financial commitments you will ever make. There’s always a concern about in the event of your death or becoming seriously ill, your family might have difficulty meeting this large liability. 

When you are trying to take out a mortgage your lender will inform you that you will need either life insurance or mortgage protection. Mortgage protection and life insurance look like the same product as both can be assigned to your lender to pay off your mortgage in case of the death of the policyholder. 

However, one of the main differences between them is that Mortgage Protection insurance is designed to cover just your mortgage repayments if you die. Life insurance policies, on the other hand, are mainly to protect you and your family.

What is Mortgage Protection and how does it work?

Mortgage protection is a life assurance protection policy that ensures that your mortgage will be paid off if you die during the term of your plan. It is compulsory and must be taken out when you get a mortgage.

The cover amount of this plan reduces each month as the amount owed on the mortgage reduces. Your premium does not change, even though the level of coverage reduces. This makes mortgage protection the cheaper option. But is cheaper always the best? Not necessarily.

What is Life insurance and how does it work?

Life insurance provides a lump sum cash payment to your family in the event of your death. The cover of this plan doesn’t reduce like with mortgage protection and it will remain the same for the entire term of your policy.

Nobody wants to talk about their death, but failing to plan can have a serious impact on your family since they will be the ones to pay this big debt or even pay for funeral expenses. So putting the right cover in place to protect your family should be a top priority.

Of course, you can also get Life Insurance and assign it to your Mortgage lender. When you do this, your mortgage will decrease annually but your cover amount won’t. If you were to pass away, the mortgage would be paid off and any remaining cover will be paid out to your family. This option only costs a little bit more, but if it was ever needed, it’s definitely the better option.

According to the Irish Times, the average cost of a funeral in Ireland is around €6,000. And compared to other countries in the survey; Ireland was placed fourth in the ranking as the most expensive funeral cost.

Having life insurance will guarantee peace of mind knowing your loved ones would be looked after financially. The money from a life cover plan could enable them to:

– Maintain their current lifestyle and help with their monthly outgoings.

– Pay off loans and debts.

– Invest the money for the future or to generate a new monthly income.

– Pay for children’s education.

– Create a “rainy day fund” or manage any other living expenses such as maintenance or hospital expenses.

Mortgage Protection vs Life Insurance in Ireland – The Breakdown

Both insurances will provide a lump sum in case of death during the term of the policy. One of the differences is that mortgage protection will cover only your mortgage repayments if you die prematurely and life insurance, on the other hand, is mainly to protect you and your family financially in the event of death. 

Another difference is that the cover on mortgage protection reduces each month as the amount owed on the mortgage reduces. This doesn’t happen with life insurance, the cover remains the same.

See the other differences below.