Question: We recently cleared our mortgage debt, ahead of schedule. This is a huge financial milestone for us, and we’re thrilled to be free of the monthly repayment.
Our mortgage was originally for €200,000 over a term of 30 years, but we were able to repay it in full after just 20 years. However, our mortgage protection policy still has 10 years left. It’s not very expensive – it costs us €17.22 per month. Should we just close this policy now, or is it wise to keep it going?
Answer: Firstly, congratulations on clearing your mortgage. It’s a relief to get it paid off, and 10 years early is a huge achievement, so well done.
Deciding whether to keep your mortgage protection policy or close it comes down to a few key factors. Let’s step back for a second and start with the role of the policy itself.
A mortgage protection policy is a term assurance policy with a reducing sum assured. Based on the detail you provided, you’re likely to have cover of circa €115,000 still in place. This policy was a mandatory requirement when you were drawing down your mortgage.
The lender insisted that you have it to ensure that the home loan would be cleared if either of you died prematurely. It was there to protect both the lender and yourselves. Now that the debt is cleared, that need itself no longer exists.
However, just because the original need for the cover no longer exists, it doesn’t necessarily mean that the policy has no role to play in your lives. It may provide benefits to you or your loved ones if either of you was unfortunate enough to face ill health and pass away in the next 10 years.
I know it’s not the cheeriest of conversations, but it’s one worth having. I’d suggest kicking it off with a review of your current financial
circumstances to see if that life cover is a benefit worth keeping.
When you took out this policy, you were 20 years younger and that’s reflected in the low cost of the premiums. If you were to look for that same cover over the remaining term, starting when older, you could see an increase in the premium by up to 55%.
Most importantly, ask them [financial adviser] to check how much would it cost you now to get the same level of cover as your existing plan
Health is another crucially important factor to consider. If your health has changed since you took out the policy, then keeping it might be wise, especially if getting new coverage would be more expensive or harder to qualify for. The existing policy could offer protection that might be difficult or costly to replace now.
The flip side is that if you feel like you’re in good health, you have no need for the life cover, or you’ve got other insurance policies in place, it might be smarter to close it and save on the premiums. They add up over time, even when the premiums are small.
Talking to a financial adviser would help you get advice tailored to your overall financial situation and future needs. Ask the adviser to review and analyse your current need for life cover. Discuss your health history with them to see if that could be a factor in your decision.
Most importantly, ask them to check how much would it cost you now to get the same level of cover as your existing plan. This comparison can really give perspective.
In terms of what advice to expect, it’s worth bearing in mind that your adviser will be very slow to recommend closing the plan, even if that’s what makes sense to you.
They’ll be afraid of a ‘Murphy’s law’ situation, where one of you dies after the policy is closed. Even if you’re both in a good financial situation and in good health, it’s likely your adviser has never met a family who wanted to return a life cover payment because they had enough money.
There’s no right or wrong answer here, just what’s right for you and your partner. I hope this has been of some help to you and I wish you the best of luck with your decision.
While your mortgage protection policy is linked to your mortgage, you don’t have to close it if you pay off your mortgage early. You might decide to keep it, depending on:
The cost of your monthly premiumsYour financial circumstancesThe potential financial benefits to your loved onesYour current health statusWhether or not you have other life assurance policies in placeMartin Glennon is head of financial planning at Ifac, which is the professional services firm for farming, food and agribusiness
Question: We recently cleared our mortgage debt, ahead of schedule. This is a huge financial milestone for us, and we’re thrilled to be free of the monthly repayment.
Our mortgage was originally for €200,000 over a term of 30 years, but we were able to repay it in full after just 20 years. However, our mortgage protection policy still has 10 years left. It’s not very expensive – it costs us €17.22 per month. Should we just close this policy now, or is it wise to keep it going?
Answer: Firstly, congratulations on clearing your mortgage. It’s a relief to get it paid off, and 10 years early is a huge achievement, so well done.
Deciding whether to keep your mortgage protection policy or close it comes down to a few key factors. Let’s step back for a second and start with the role of the policy itself.
A mortgage protection policy is a term assurance policy with a reducing sum assured. Based on the detail you provided, you’re likely to have cover of circa €115,000 still in place. This policy was a mandatory requirement when you were drawing down your mortgage.
The lender insisted that you have it to ensure that the home loan would be cleared if either of you died prematurely. It was there to protect both the lender and yourselves. Now that the debt is cleared, that need itself no longer exists.
However, just because the original need for the cover no longer exists, it doesn’t necessarily mean that the policy has no role to play in your lives. It may provide benefits to you or your loved ones if either of you was unfortunate enough to face ill health and pass away in the next 10 years.
I know it’s not the cheeriest of conversations, but it’s one worth having. I’d suggest kicking it off with a review of your current financial
circumstances to see if that life cover is a benefit worth keeping.
When you took out this policy, you were 20 years younger and that’s reflected in the low cost of the premiums. If you were to look for that same cover over the remaining term, starting when older, you could see an increase in the premium by up to 55%.
Most importantly, ask them [financial adviser] to check how much would it cost you now to get the same level of cover as your existing plan
Health is another crucially important factor to consider. If your health has changed since you took out the policy, then keeping it might be wise, especially if getting new coverage would be more expensive or harder to qualify for. The existing policy could offer protection that might be difficult or costly to replace now.
The flip side is that if you feel like you’re in good health, you have no need for the life cover, or you’ve got other insurance policies in place, it might be smarter to close it and save on the premiums. They add up over time, even when the premiums are small.
Talking to a financial adviser would help you get advice tailored to your overall financial situation and future needs. Ask the adviser to review and analyse your current need for life cover. Discuss your health history with them to see if that could be a factor in your decision.
Most importantly, ask them to check how much would it cost you now to get the same level of cover as your existing plan. This comparison can really give perspective.
In terms of what advice to expect, it’s worth bearing in mind that your adviser will be very slow to recommend closing the plan, even if that’s what makes sense to you.
They’ll be afraid of a ‘Murphy’s law’ situation, where one of you dies after the policy is closed. Even if you’re both in a good financial situation and in good health, it’s likely your adviser has never met a family who wanted to return a life cover payment because they had enough money.
There’s no right or wrong answer here, just what’s right for you and your partner. I hope this has been of some help to you and I wish you the best of luck with your decision.
While your mortgage protection policy is linked to your mortgage, you don’t have to close it if you pay off your mortgage early. You might decide to keep it, depending on:
The cost of your monthly premiumsYour financial circumstancesThe potential financial benefits to your loved onesYour current health statusWhether or not you have other life assurance policies in placeMartin Glennon is head of financial planning at Ifac, which is the professional services firm for farming, food and agribusiness
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