Life insurance covers only part of our mortgage term

Q&A: We purchased a house as first-time buyers in 2007 with Permanent TSB. As part of the purchase, PTSB advised us that we would require mortgage protection insurance in the form of life cover to cover the mortgage in the event that either of us died. They arranged the cover for us with Irish Life.

When we were reviewing the documentation the other day, we realised we were only given a 10-year policy. Our mortgage is for 35 years. We are currently in year six, so the life insurance only covers 50 per cent of the mortgage and in year 10 it will cover less than 10 per cent of the remaining mortgage.

We were led to believe the cover PTSB required, and that we were being sold, would last the term of the mortgage and cover the full remaining mortgage.

I have contacted PTSB but have not heard anything back yet. As we have just discovered we are under-insured, should we be looking for alternative mortgage protection insurance or should we wait until we hear back from PTSB?

Ms CB, email

Even allowing for the fact that your mortgage was taken out in the heat of the property bubble, the circumstances surrounding it still sound extraordinary to me.

I’m not saying it has never happened – from your experience clearly it has – but I have never before come across a situation where a mortgage lender will sanction a first-time buyer mortgage which is not covered by matching life insurance policy (mortgage protection) – even in those crazy years.

Mortgage protection is a key instrument in ensuring the lender gets repaid in the event of an untimely death. More importantly, it provides security for you, the borrowers, that you will not be forced to sell your home in those extreme circumstances.

That is why, by law, a lender cannot sanction a mortgage to a borrower unless it is properly covered for the full term by mortgage protection.

There are, as always, exceptions. The most straightforward is if the borrowers already have sufficient life insurance to cover the mortgage – though it will have to be allocated to cover the mortgage specifically. If the property is an investment rather than a principal private residence, you can also sidestep the requirement, or if the borrower is over the age of 50.

In all these circumstances, the lender is entitled to proceed without cover – though, in my experience, very few do so.

There is one final exception and this is the one which may be relevant here. The lender apparently can proceed if the mortgage applicant cannot secure life cover – generally for medical grounds.

Having checked with Permanent TSB and Irish Life, it appears that the life company would provide cover only for 10 years for health reasons. You don’t mention this specifically in your letter, but I am assuming these are not contested.

Irish Life tells me the 10-year restriction was made expressly clear to you both at the time the mortgage documentation was signed.

I understand that this was not a case of simply signing where an “x” was marked in one of a series of places in a complex document. Rather, there was a separate letter of acceptance of the terms of the mortgage protection policy which, I am assured, very clearly pointed out the cover was being issued on special terms and highlighting the 10-year term.