Mortgage Protection - Insuring for more than mortgage

Naos

Morning all,

I've been advised that as a non-married couple, we would be subject to inheritance tax if one of was to die after a payout from our mortgage protection.

Mortgage: 300k

So, I was advised to get mortgage protection for 360k to cover the 60k tax (20% give or take).

Is this standard practise? I know with car insurance for example if I state my car is worth 10k but in reality is only worth 5k, they'll only pay the 5k (if I'm lucky).

Can I get mortgage protection for as much as I want (at a premium) and they will pay out?

Thanks!

L1011

You'll need a different product to standard mortgage protection as that normally works on a reducing term basis so that you are only insuring the remaining value of the loan at any given time. But you can definitely pay for life insurance of a higher value

Naos

L1011 wrote: »

You'll need a different product to standard mortgage protection as that normally works on a reducing term basis so that you are only insuring the remaining value of the loan at any given time. But you can definitely pay for life insurance of a higher value

Thank you - but the broker definitely stated this was for mortgage protection.

So are you saying I cannot get mortgage protection for more than what my mortgage is? Ie - mortgage is 300k, I cannot take out 360k?

L1011

You can but if it is a reducing term policy, which is the absolute norm, its pointless. It'll only cover 1/6th more than the final mortgage payment by the end as the over-cover will be reducing by the same amount

SozBbz

Yep, this is true, and very annoying.

The obvious solution is to get married (whcih we're going to do) but its just the way it is. The point of Mortgage Protection is for all liabilities to be paid off in the event of a death, and that includes tax liabilities.

So unless the govt change the law on the family home relating to cohabiting couples, (some sort of civil partnership?) then this has to be the case for the bank to be covered.

cullenswood

As said, you can insure for whatever amount you want to as the policy itself is not linked to the mortgage. It only gets assigned to the lender, so they can get comfort that the remaining balance will be covered in the case of death. Whatever is left over of the payout (be that €50 or €50k) is yours.
These type of policies are generally amortising policies so the amount covered will reduce as the term progresses. It does not identically match your own mortgage, and majority of people will be in some small way over protected, as the interest rate the protection provider uses for calculations would be greater than prevailing rates.

Is the mortgage in joint names?

jlm29

We just got normal life insurance. Once the term was more than the mortgage term it wasn’t an issue, and it’s cheap.

Naos

cullenswood wrote: »

As said, you can insure for whatever amount you want to as the policy itself is not linked to the mortgage. It only gets assigned to the lender, so they can get comfort that the remaining balance will be covered in the case of death. Whatever is left over of the payout (be that €50 or €50k) is yours.
These type of policies are generally amortising policies so the amount covered will reduce as the term progresses. It does not identically match your own mortgage, and majority of people will be in some small way over protected, as the interest rate the protection provider uses for calculations would be greater than prevailing rates.

Is the mortgage in joint names?

Thanks - yes it will be in joint names.

Sounds like it's easier to just get married to sort all of this out!

virgo69

If you have a joint policy you won't be subject to inheritance tax.