The Consumer Credit Act, 1995 requires borrowers to take out a life assurance policy to cover repayment of the outstanding mortgage on the death of the borrower. This requirement only applies to loans advanced against the borrower’s principal private residence.

The requirement does not apply to mortgages where the borrower is over 50 of age or where the borrower cannot get insurance or where insurance has been offered at a significantly higher premium than that paid by borrowers generally.

You can use an existing life insurance policy as long as it is not already assigned to cover another loan or mortgage and it provides enough cover.

Where there are two or more borrowers the policy is normally arranged on a joint life first death basis. This means that on the death of the first to die of the borrowers, the life policy pays out the full outstanding amount and the policy and mortgage both cease. If the pay-out on the life policy exceeds the outstanding amount due to the lender on the loan, that excess is paid to the surviving borrower or to the Estate of the deceased borrower.

The Act also prohibits linking of services. A lender is not allowed to offer a housing loan on condition that any other financial services, conveyancing, auctioneering or other services relating to the purchase of the property is arranged through the lender.

A person providing auctioneering services, or constructing houses for sale and who is also a mortgage intermediary, may not sell a house on more favourable terms to those who take out a mortgage with them. They must offer the house for sale at the same price to those who arrange their finances elsewhere.

Taking out a mortgage protection policy is sensible because it protects the borrowers by paying off the loan on death. It also protects the lender from having to renegotiate the loan with the deceased borrowers Estate and potentially having to re-possess the property.

The law also allows and encourages borrowers to shop around for the best mortgage protection policy.