Term assurance - repaid mortgage - if invalid can I get refund?

scottyh56

I have a term life assurance policy taken out originally in 1987 for 25 years to 2012.

I moved away from that home in 1991 and repaid the mortgage. I continued to make payments assuming that cover would stay in place declining with the theoretical value of the original mortgage.

Three moves later I wrote to the new provider of this policy (they had been transferred I believe in the 90's) with my new address. They have replied mentioning that "the amount assured decreases in line with the mortgage that the policy was originally taken out with providing no changes have been made to that mortgage". (Note that I did not mention the mortgage had been repaid - I assumed that they would understand that).

After I wrote they also sent a plan certificate stating that the commencement date of the assurance was 1995 maturing in 2022!

All a bit confusing!!! The questions:

If I die tomorrow will they squirm their way out of the policy saying it is invalid?

If the policy has been invalid for years then can I get a refund of payments?

Thanks

Scott

Tighthead

Hi Scott,

Assuming this is a Decreasing Term Assurance or Mortgage Protection policy, then I think you may have misinterpreted the letter. The life insurance is not tied to your mortgage; it is a separate, stand-alone life insurance policy that you took out to repay your mortgage i.e. the life insurance won’t automatically change if you change your mortgage.

The rate at which the life cover reduces was calculated with reference to your original mortgage. I think they're simply saying, if you changed your mortgage i.e. borrowed more, extended the term, it may not be sufficient to fully repay the mortgage.

I imagine the difference in dates is just a mistake in the last letter you've received. Have you asked them?

Irrespective of whether you still have a mortgage or not, the life insurance will still pay out in line with the original terms.

Hope that helps.
Regards.

scottyh56

Hi thanks for the reply.

The original policy states the benefit will be "the amount of The Mortgage outstanding at the date of death".

The Mortgage was repaid in 1991....

Tighthead

Because the DTA is designed to repay the mortgage, the rate at which the DTA decreases should match the rate at which the mortgage decreases. If interest rates change, the DTA may not be sufficient to fully repay the mortgage. As a result, some companies have a "mortgage repayment guarantee" so that irrespective of interest rate changes (not borrowing more or changing terms) they guarantee on death that they will repay all of the mortgage.

If the mortgage has been repaid, there is nothing to guarantee to repay, so they will just pay a lump sum in line with the original decreasing term.

Question, if the mortgage has been repaid, why do you need to keep the life insurance though?

scottyh56

I have it to help support my wife and kids - & help them repay the current mortgage! I do have other assurance - I just always regarded this as a top up.

dunstonh

The policy was taken out to pay off the mortgage. That was the aim and that is what it would do.

If you make changes to that mortgage then the life assurer isnt going to know that. The onus is on you or your financial adviser to advise and work out if policies are suitable for your needs or not.

If you dont notify them that you dont need it any more then they wont cancel it and that is the right thing to do. Some people may want to keep the policy on because they have become uninsurable or decide the extra cover is needed. It isnt for the insurer to decide what is right for you. That is down to you and your adviser (if you use one).

scottyh56

But I still worry whether companies would squirm their way out of payments because of the 'technicality' that the mortgage referred to has a balance of nil.

No, they wouldn't do that, would they? ;-)

Anyway it's poor value so I'm cancelling, but what if it's been valueless?

scottyh56

Sorry dunstonh - are you saying that they would pay out or not?

Tighthead

No, they wouldn't do that. See my earlier post.

If you're cancelling, what does it matter? You're not going to get any benefit anyway. Have you called the company and asked them what they would pay out and/or queried the start/end dates? We can only speculate without knowing the policy specifics.

Tighthead

Tighthead wrote: »

No, they wouldn't do that. See my earlier post.

If you're cancelling, what does it matter? You're not going to get any benefit anyway. Have you called the company and asked them what they would pay out and/or queried the start/end dates? We can only speculate without knowing the policy specifics.

For clarification, this refers to your post of 11:31. Yes they would still pay out. The mortgage guarantee just wouldn't apply.

Have you asked them? It doesn't really matter what we think!

scottyh56

Oh, I've written again. No response yet. And I suspect that the reply will be as evasive as the one they gave me last year - see first post - that I did not have time to follow up. I then asked specifically what would be paid out on death.

I've searched around the web for others in a similar position - can't find anything so i thought I'd ask here.