Protection
Protection

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Mortgage Protection:

When you are borrowing money to buy a home, lenders will usually request that you take out a mortgage protection policy. Your home is likely to be the most important thing you own so it’s important to protect it. A mortgage protection plan is a decreasing life policy that pays off your mortgage if you or another person named on the policy dies during the term of the policy, giving your family the peace of mind that their home is safe if the worst were to happen. Many people will arrange a mortgage protection policy with their mortgage provider, without reviewing the market to see if they are getting the best price and/or benefits available to them. A decreasing life policy means that the amount of life insurance decreases over time, to fall in line with your outstanding mortgage. These types of policies are lower cost than level term policies (explained below).

Mortgage Protection policies will vary in price depending on: 

  • The amount of cover required 
  • The term of the plan (length of mortgage)
  • Your age at the time of purchasing the policy 
  • Your smoking status 
  • Whether you are in good health or have any underlying medical conditions 
  • Whether you include Specified Illness Cover 
  • Whether it is joint or dual life policy (explained below)

Life Insurance:

Life Insurance gives you the peace of mind that if you die, your family will not be left struggling financially. Below is an explanation of some of the terminology used: 

  • Term of the policy – this means the number of years 
  • Decreasing Term – the value of sum assured decreases in value over the term of the policy (mortgage protection policies are decreasing term)
  • Level Term – this type of policy means the value of the policy stays the same over the term 

The cost of the policy will depend on: 

  • Your age at the date of inception 
  • Your health status 
  • Your smoking status 
  • The value of sum insured 
  • The term of the policy 

Life cover can be offered as: 

  • Single Life – You are the only life covered
  • Joint Life – This covers 2 people but there is only one payout – which is paid on the first death
  • Dual Life – This covers 2 lives and there is a payout on the death of each person 

Specified Illness Cover:

Specified Illness cover provides a lump sum payment if you are diagnosed with a specified illness covered by your provider. This money is often used to help you pay your mortgage or rent, pay for medical treatment or make any required alterations to your home. Some illnesses qualify for full payment and some for partial payment. There are different specified illness options available: 

  • Stand-alone specified illness cover – this policy offers specified illness cover only.
  • Stand-alone specified illness cover and life cover – this type of policy pays out for both specified illness and death so there are essentially two policies in one. 
  • Accelerated Specified Illness – this type of policy means the life cover is reduced by the amount of specified illness benefit paid out. 
  • Accelerate Mortgage Protection – this is similar to accelerated specified illness cover but the sum assured reduces over the term in line with the outstanding mortgage. 

 

Specified Illness can be offered as: 

  • Single Cover (You are the only person covered)
  • Joint Cover (This covers 2 people – the cover stops for both members once there is a fully payment on either member)
  • Dual Cover (This covers 2 people and there are two payouts in the event of a specified illness)

Income Protection:

Income Protection pays a benefit if an accident, injury or illness leaves you unable to work. It protects your most important asset – your income! Employers are not obliged to pay sick leave and if they do, most will only pay for six months. This is why Income Protection is so important, it gives you financial security so that you can continue paying your mortgage, car loans and food.

The maximum allowable benefit is 75% of salary less state illness benefit. You get tax relief at your marginal rate and the benefit is paid out until the maximum age which is between 65-70 depending on the life company selected. Income protection policies have deferred periods which is similar to a waiting period – the benefit will only kick in once you are out of work for this length of time. Deferred periods vary from 13-56 weeks, though the most common is 26 weeks. 

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