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In meetings with clients recently I have noticed that there can be a bit of confusion surrounding the various insurance policies they have attached to their mortgage. Often these policies will have been set up by the mortgage provider or bank at the start of the mortgage. The premiums are sometimes even collected as part of the mortgage payment, and extracting information about the various policies can often be difficult.

Sometimes your home insurance is included with your mortgage, however, most people are aware that it is recommended to shop around for the best deal on this every few years at least. The most common confusion is between a Mortgage Repayment Protection policy and a Mortgage Protection policy.

A Mortgage Repayment Protection policy is designed to pay your mortgage payments for up to 12 months if the person covered is unable to work through illness or injury, or is made redundant. Many of these policies were set up by banks at the outset of mortgages and if there have been any changes to your situation in the intervening years it may turn out to be completely inappropriate for you now, you may even be paying premiums on a policy under which you cannot claim.

A Mortgage Protection policy is designed to clear off your mortgage completely if you were to die while the debt still exists. Almost everyone has this type of policy as it forms part of the conditions of most mortgage contracts. The cheapest and most common type of policy used for this is a Decreasing Mortgage Protection policy, under which the Death Benefit payable decreases through time, broadly in line with your mortgage balance.

Most of these policies are set up to decrease as if your mortgage interest rate is 6% or more. Given that many of you have been paying rates much lower than that on your mortgages, a significant gap may have developed between your balance and the amount paid out. If you do not need this extra benefit you can often make savings on your premium by starting a new policy providing benefits equal to your current mortgage balance.

Another reason to look at your Mortgage Protection policy would exist if you have been, like many, paying only the interest on your mortgage for an extended period. In this case, your policy may not be sufficient to clear your mortgage on death.

If you would like to find out more about what type of protection you are paying and if you could be making savings on your policy, you should contact a Qualified Financial Advisor who will be happy to discuss all these matters with you and assist you in obtaining the clarification you need.

Sean Sweeney, QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor. You can contact him through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on sean@jfl.ie