Negative equity insurance is simply using a life insurance policy to fund the difference between to value of a property and the outstanding debt on it should you pass on. This is a very prudent estate planning measure; whilst you may be in a position to manage your affairs on an ongoing basis, would your family be if something happened to you.
Whilst most people have a mortgage protection policy relating to their own home, most do not have any cover on their investment properties. We believe it is a matter of good planning to consider putting cover in place to cover any potential shortfall.
Example: John and Mary bought an investment property in 2003. As it was an investment property they didn’t have to take out mortgage protection cover.
Its value rose very quickly with the rapid increase in house prices and by 2007 they estimated it was worth about €120,000 more than they had paid for it.
They viewed it as a valuable financial safety-net for themselves if they ever needed it and something they could pass on to their children in time.
Since 2007 John and Mary have fallen victim to the housing market collapse. They are now faced with the reality that the mortgage on their investment property is now in negative equity.
If they were to sell it today they would have to find an additional €100,000 to clear the mortgage.
If their children were to inherit it they would now be inheriting a debt instead of an asset.
Solution: Joe and Siobhan took out a €100,000 Lump Sum on Death cover. If either of them was to die the lump sum payment combined with the value of the property will help ensure the mortgage is cleared in full. It also means that in the future they won’t be burdening their children with debt.