Should you buy Mortgage Protection Insurance from your lender

Mortgage Protection Insurance (MPI) is a crucial consideration when taking out a mortgage. This type of insurance ensures that your mortgage will be paid off if something happens to you, providing financial security for your loved ones. 

To help you make the best decision, we spoke with Tania O’Callaghan, Financial Advisor at Aviva   to get some expert advice and insights into the pros, cons, and key steps you should take before choosing or switching your mortgage protection policy. 

While it's convenient to buy MPI directly from your lender, is it always the best choice? In this article, we look at the options available to help you make an informed decision.

What Is Mortgage Protection Insurance (MPI)?

Mortgage Protection Insurance is a type of life cover designed to pay off your mortgage in the event of your death during the term of your loan. It is normally required by lenders as a condition of your mortgage approval, providing peace of mind for both you and your lender should the worst happen.

The pros and cons of buying MPI from your lender

Pros: 

1. Convenience: Buying MPI directly from your lender is simple and quick. You’re already with them, and the process feels seamless  .
2. Minimal Steps: There’s no need to shop around or engage with multiple providers. The lender offers a quote, and you can apply for a policy there and then.

Cons:

1. Higher Costs: Policies offered by lenders tend to be more expensive compared to those in the market. You could save significantly over the lifetime of the policy by researching alternative providers.
2. Limited Coverage Options: Lenders may offer fewer benefits and cover options, which could result in you missing out on tailored coverage or valuable benefits like Aviva’s second medical opinion or digital GP services.

Our Expert’s Tip: It is a common myth that you are obliged to take MPI with your lender. It’s always worth comparing quotes and reviewing what each provider offers in terms of price, benefits, and coverage. All your lender needs is a policy that covers the individual(s) taking our the mortgage, for the amount of the loan and term of the mortgage. 

Key Steps Before Switching Your Mortgage Protection

Switching your MPI provider can save you money, but there are important factors to consider:

1. Review Your Current Policy

• Check for financial consequences if you cancel your existing policy.
• Consider your current health and whether any new medical conditions could affect your premiums. A new policy is subject to the acceptance criteria of the new insurer.

2. Evaluate Your Coverage Needs

• Over time, your mortgage balance decreases as you repay the loan. Getting a new quote for the remaining amount of your mortgage may result in a lower premium. 

3. Don't Cancel Too Soon

• Always have a new policy in place and started before cancelling your current policy to avoid any gaps in coverage.

4. Understand Pre-existing Conditions

• Health conditions that arose since taking out your original policy might result in exclusions, higher premiums, postponements, or even declines. So, it’s important not to cancel your existing policy until the new one is in place and your lender has confirmed that the new policy is acceptable.

Our Expert’s Insight: “The main thing is to not cancel any policy until you’re happy with the new policy and its start date,” says Tania, Financial Advisor. 

Pre-Existing Conditions: What You Need to Know

If you have pre-existing health conditions, insurers may offer you non-standard terms. This means that you may be subject to:

• Higher Premiums: Adjusted due to increased risk.
• Postponements: Your application may be delayed if you have ongoing medical investigations.
• Declines: While rare, some conditions can lead to outright declines.

Our Expert’s tip: Under a new code of practice, some insurers will no longer automatically decline mortgage protection cover for applicants who have had a previous cancer diagnosis. The code provides for a cancer survivors’ ‘Right to be Forgotten’, meaning insurers will disregard a cancer diagnosis where treatment ended more than 7 years prior to their application or more than 5 years if the applicant was under 18 at the time treatment ceased.  However, any application is subject to the individual insurer’s acceptance criteria.  

What benefits do alternative providers like Aviva offer?

Many insurers, including Aviva, provide additional benefits that can enhance your coverage and give you added value. These additional benefits can include:

• Digital GP Services: Access to a digital GP anytime, anywhere, for free consultations.
• Best Doctors® Second Medical Opinion: Get an expert second opinion from a world-renowned specialist who can double check a diagnosis for any condition affecting your quality of life.
• Mental Health Support: Services for both adults and children up to 23 years old that offers access to a wide variety of specialist forms of therapy, including counselling and Cognitive Behavioural Therapy. 
• Accidental Death Benefit: Immediate temporary coverage while your application is processed.
• Guaranteed Insurability Option: Increase your cover by up to €40k or extend the term to age 70, without additional medical checks if your needs change (e.g., buying a bigger house).  T&Cs apply

These benefits provide value beyond the basic mortgage protection policy, offering comprehensive support for you and your family  .

Can you combine Mortgage Protection with Life Insurance?

Mortgage Protection Insurance is a form of life insurance and is specifically designed to pay off your mortgage, but it’s possible to have separate life insurance as part of your financial planning to cover any additional financial needs you or your loved ones may have (i.e. estate planning).

For example:

• Mortgage Protection Insurance: Is designed to pay your outstanding mortgage balance if the worst were to happen i.e. in the case of death. So, you know your family are secure in the home they love. The policy would normally be assigned to the lender that provided the mortgage.   Generally, these policies are assigned to your lender on drawdown of your mortgage and any claim on the policy is paid to your lender, therefore clearing your outstanding mortgage allowing your family to remain in their home debt free.  
• Life Insurance: Provides a lump sum payout to your family, which can be used to replace lost income. Generally, these policies are not assigned to any financial institution and a claim on these policies will be payable to your estate or directly to your family/spouse.  

Making the right choice for your Mortgage Protection Insurance

To recap, here’s how to approach Mortgage Protection Insurance if you are looking to take it out a new policy or change your existing policy:

• Compare Costs: Don’t settle for the first quote from your lender. Shop around.
• Evaluate Benefits: Look at what benefits and coverage each policy provides and make sure it aligns with your needs.
• Know Your Health: Be prepared for medical underwriting, especially if you have pre-existing conditions.
• Act Early: Submit your application as soon as possible to avoid delays that could jeopardise your mortgage drawdown.

Our Expert’s Advice: “The sooner you start the process, the better. Delays in underwriting could mean losing out on your dream home,” advises Tania, Financial Advisor.

The Bottom Line

While buying Mortgage Protection Insurance directly from your lender is convenient, it may not be the most cost-effective or beneficial option. By exploring alternatives like Aviva, you can access competitive pricing, valuable benefits, and personalised coverage.

Ready to explore your options? Learn more about Aviva’s Mortgage Protection Insurance and the additional benefits that can offer you and your family peace of mind.

Mortgage Protection Insurance FAQs

1. Is Mortgage Protection Insurance mandatory?

Yes, most lenders require Mortgage Protection Insurance for the mortgage you are taking out with them. It’s normally a condition of drawing down your mortgage.

2. Can I switch my mortgage protection provider?

Yes, you can switch at any time, but ensure the new policy is active before cancelling your old one. Make sure the cover, including term is sufficient to meet your lenders requirements.

3. Do I need Mortgage Protection Insurance for a second home?

It may not be a requirement by the lender for mortgages on investment properties or holiday homes. However, to protect yourself and your family we would always recommend that Mortgage Protection Insurance is taken out for any new mortgage, as if the worst were to happen your family may have to sell the property to repay the outstanding loan amount. As financial advisors, we would advise you to cover any large debt with a life policy. 

4. Will my premium increase if I develop a health condition?

No, premiums are fixed once your policy is in place, regardless of future health changes.