If you’re a homeowner or in the process of buying your first home, you may have come across the terms "mortgage protection" and "life insurance" and wondered why you need them, or what the difference is between them.

There are two main things to know: 

• First, mortgage protection is a type of life insurance 
• Second, mortgage protection does exactly what it sounds like — it pays off your mortgage if you die and is cover you generally need to have in place to get a mortgage 

That money goes to the mortgage lender, whereas if you want your family to have financial cushioning after your death, you’d need a separate life insurance plan. 

There’s a little more to it, and we’ll go into further detail below. After all, buying a home is a huge investment and there’s a lot to unpack — and that’s before you’ve even gotten the keys. Whether you’re a first-time buyer, moving or switching mortgages, we’re here to help you understand both. We’ll answer some commonly asked questions, so you can understand which you need and when. 

What’s the difference between mortgage protection and life insurance? 

Life insurance and mortgage protection are two types of insurance policies.  Mortgage protection is a type of life insurance that’s there to pay the mortgage provider (usually the bank) back the mortgage amount if you die.

Whereas when someone refers to simply “life insurance”, they’re generally referring to the type that provides your family with a lump sum if you die. 

What is mortgage protection? 

Mortgage protection is a type of life insurance specifically designed to pay off your mortgage in full if you die before the mortgage is fully repaid. The balance of your mortgage will be paid off to your mortgage provider (usually the bank), so your loved ones aren’t left with the debt.  

Without mortgage protection, you won’t be able to get a mortgage. It’s generally legally required by your mortgage provider and needs to be in place before the mortgage can be drawn down.  

Some lenders may not require you to have mortgage protection if: 

• You’re over 50 years old 
• The mortgage is not for your home - it’s for an investment property 
• You can’t get mortgage protection insurance because of a serious illness or a dangerous job 
• You already have enough life insurance that covers the mortgage in full 

 What is life insurance? 

Life insurance is meant to give your family a one-time payment if you die. This money can be used in different ways, like paying for daily expenses or debts, or even paying off your mortgage. 

How does life insurance work? 

Life insurance is a contract between you and an insurance company, in which you pay regular payments (called “premiums”) in exchange for a lump-sum payment to your designated beneficiaries (usually your family members) when you die. Essentially, life insurance is a way for you to financially protect your loved ones after you pass away. 

The amount of money you pay every month for life insurance can be different based on what kind of insurance you choose and your personal situation. This includes things like how old you are, how healthy you are, and what your daily habits are like. A review with a financial advisor can help clear up what kind of life insurance you need to make sure you and your family are covered.  

What are the different types of life insurance? 

Most life insurance providers offer a few different types of life insurance, to suit different financial situations. One kind is called "term life insurance", which will give your family a lump sum of money if you die within a certain time frame. Another is "whole-of-life insurance", which covers you for as long as you live.  

There are also options known as “living benefits” which pay out while you’re still alive. Depending on the type of plan you choose, this could mean a payment of a lump sum if you are diagnosed with a specified illness covered by that plan or a regular payment that replaces your income if you’re unable to work due to illness or injury while employed.

If you're thinking about getting life insurance and want to know more, the first step is to get a financial review with a financial advisor. They’ll help you understand your financial situation and the kind of cover you need and explain the different types of insurance and policies available. They can guide you through the options so that you can make a smart choice. To talk to an advisor about life insurance, you can book an appointment using the form below. 

Do I need life insurance to take out a mortgage? 

Mortgage protection is a type of life insurance, but you don’t need to have a separate life insurance policy as well as your mortgage protection policy to take out a mortgage.  

However, it can be beneficial to have both if you have a family that’s financially dependent on you and you’re able to afford the extra monthly cost. 

Does life insurance include mortgage protection?    

Some life insurance policies can be used to provide mortgage protection. However, this depends on a couple of things: 

• Your life insurance policy must provide enough cover for the mortgage 
• Your life insurance policy needs to last for the same amount of time or longer than the period of your mortgage, which is the amount of time you have to pay back the loan. 
• If you’re applying for a mortgage with a partner, your partner must also be listed on the life insurance policy that you want to use as mortgage protection 

Before making any decisions, consider your family’s needs and financial situation.  

If you assign your current life insurance policy to your mortgage provider instead of buying a special mortgage protection policy, the provider will use it to pay off what you still owe on your mortgage first if you die before you can pay it off. 

Only the remaining amount will go to your loved ones after the mortgage has been fully repaid. Depending on your circumstances, this may not be enough money to support your family's long-term security so it’s worth weighing up all options. 

What happens if I die after paying off a large chunk of my mortgage? 

If you've paid off a lot of your mortgage, you might be wondering if you still need mortgage protection. Even though you might not need as much cover as before, you still need an insurance policy that covers the outstanding mortgage until you've fully paid off your mortgage. 

If you have decreasing-term mortgage protection, the amount of cover will decrease as you pay off more of your mortgage.  

But if you have level-term mortgage protection insurance, the amount of cover stays the same. So, if you pass away before your mortgage is fully paid, the insurance company will pay your lender the original amount you were insured for (your original mortgage). The lender will then use the payment to clear your outstanding mortgage and pass on the remainder of the payment to your beneficiary.  

If you're unsure about which mortgage protection is best for you, it's a good idea to talk to a financial advisor for advice. 

Do I have to take out mortgage protection with the bank? 

Contrary to popular belief, you don’t have to buy mortgage protection from your bank. Mortgage providers are required to make sure you have mortgage protection insurance before giving you a mortgage, but it doesn’t have to be from them. 

It’s a good idea to shop around and find the best plan for you. If you’re in the process of applying for a mortgage, keep in mind that the time it takes to get mortgage protection can vary depending on a couple of things, such as your health. It’s best not to leave it until the last minute or it may delay you being able to draw down your mortgage. And after all the hard work involved in buying a home in Ireland, you won’t want anything holding you back! 

If you’d like to know more about mortgage protection, or any other life insurance products from Irish Life Assurance, you can book a free consultation with one of our expert financial advisors today. 

At Irish Life, we offer financial cover for you and your family to help you prepare for the expected and unexpected challenges life can bring. Whether you’re a first-time buyer, moving home or simply looking ahead to the future, now is also a great time to review your finances and make sure you’re on track to reach your financial goals. 

Get a free financial review online now from Irish Life Financial Services to take the first steps.