What insurance do we HAVE to have with our mortgage?

TrickyDicky

Wakey2008 wrote: »

Because your debts do not die with you. The outstanding mortgage will be come a liability on your estate and therefore a responsibility to whoever (parent, brother etc) you leave the house to. Would you want to leave them the burden having to either take on a massive debt or clear it to receive what you have left them?

But debts do die with you. If you die with more debt in your estate than assets, you've essentially have £0 left, theres no negative surplus for anyone else to pay. You're not burdening anyone with anything, unless they decide they want to keep your house. In reality, you had nothing to give them in the first place.

Insurance may help clear these debts though, which may leave more money for any benificiaries.

TrickyDicky

Wakey2008 wrote: »

Your debts don't die with you at all, that's a myth. And yes they could take back the house but why would want them to take back an asset that it is probably worth £100,000s when it can be passed onto your next of kin debt free?

yes they do.
I have a £50,000 house. But I have £100,000 of debt.
My children DO NOT have to pay the £50,000 surplus, unless they want to keep the bank's house. They way you are talking, you seem to think that because you have a mortgage, you outright own the house? essentially, the bank owns the house until you have payed off the mortgage completly, so why do you think anyone is entitled to it, other than the bank.

If you lent someone your lawnmower, and then they died, would you expect to get the lawnmower back, or do you just expect it to be passed on to their kids?

Wakey2008

TrickyDicky wrote: »

yes they do.
I have a £50,000 house. But I have £100,000 of debt.
My children DO NOT have to pay the £50,000 surplus, unless they want to keep the bank's house. They way you are talking, you seem to think that because you have a mortgage, you outright own the house? essentially, the bank owns the house until you have payed off the mortgage completly, so why do you think anyone is entitled to it, other than the bank.

If you lent someone your lawnmower, and then they died, would you expect to get the lawnmower back, or do you just expect it to be passed on to their kids?

You are grossly confused. Nobody is saying that debts pass on automatically.

Your debts do not die with you. Just because the surplus debt over the assets is taken back by the lender does not mean it has died. The debt still has to be paid in some way - in this case by selling the house.

What I am saying is that in order for the family to receive the property they will have to clear the debt or take it on. Of course if they don't want a great asset worth £100,000s then they can choose not to take it and received NOTHING (no debt, no property)

This is not an ideal situation as for the sake of a life policy they can receive something valuable rather than nothing at all except heartache.

Also look at it from a lenders point of view. They are lending a massive about of money and if someone dies unprotected do you think they want to sell the house? Particularly in today's market of common negative equity.

jamesd

Ah yes, the guilt trip sales technique.

The family will be sad to be receiving anything at all, whether it's with or without a mortgage.

The family doesn't have a choice of taking on the mortgage or receiving nothing. They get whatever capital is left after the repayment of the mortgage, by sale or otherwise. Otherwise can include one or more of the beneficiaries buying the property from the estate, with or without a mortgage. With multiple beneficiaries there may well in any case be no option but to sell the property in order to divide the estate according to the will or intestacy law.

The family, for younger buyers, will more likely to be happy that they were able to put the money towards clearing the mortgage more quickly than paying for insurance when the insurance is not required to protect a living dependant.

For older buyers, with no dependant, it's entirely up to them to decide whether they think an insurance policy is sensible death or estate planning. It might be, sometimes.

If the lender is concerned then the lender can offer a discount for buyers who have whatever forms of insurance they would like them to have. If they don't think it's worth a discount then the lack of monetary value shows how little they care about it.

Wakey2008

jamesd wrote: »

Ah yes, the guilt trip sales technique.

No sales techinque here. This is a forum not a shop.

jamesd wrote: »

The family doesn't have a choice of taking on the mortgage or receiving nothing. They get whatever capital is left after the repayment of the mortgage, by sale or otherwise.

And in todays market with the high possibility of negative equity that would mean they get NOTHING.

Look at this way. House is worth £200,000 with a mortgage of £200,000.

No life policies = beneficiaries having to pay off mortgage (by one scheme or other) to get property or relinquish to lender. Cost/ value of asset lost = £200,000

Life policy in place = policy pays off debt and property passes to family unemcumbered. Benfit to family/size of asset = £200,000.

Therefore the family is better off to tune of a £200,000 when a life policy is in place.

Of course if there is equity in the property and lender seizes it the beneficiaries will receive the surplus but this will be greatly reduced by the existance of the mortgage.

jamesd wrote: »

The family, for younger buyers, will more likely to be happy that they were able to put the money towards clearing the mortgage more quickly than paying for insurance when the insurance is not required to protect a living dependant.

Yeah right, because the £5 - £10 saved a month by nothing having a basic life policy is really going to chop loads of cash off the mortgage isn't?

jamesd wrote: »

If the lender is concerned then the lender can offer a discount for buyers who have whatever forms of insurance they would like them to have. If they don't think it's worth a discount then the lack of monetary value shows how little they care about it.

What waffle. Life policies are already very cost effective compared to other types of policies and the potential lay out on death is massive. You clearly don't know much about how mortgage lenders opperate. In most case the mortgage lender is a completley different company to the life company.

dimbo61

Hi guys if you read martin,s article you would see that he said ( and he is right ) that level term assurance costs about the same as decreasing level assurance.
Now as you pay off some of the mortgage you still have the same level of cover
so if you want to borrow extra for that extension well that (Loan) is covered as well.
As the kids get older they dont get any cheaper
I have life assurance to cover the mortgage and in the event of my death also pay for the kids through university!
As for " DO IT CHEAPLY" well sorry guys
I did not say go to a back street company or dont take out enough cover I said get the life assurance at the best price.
My building society wanted me to take out life assurance with Company X and pay £36 a month for £120,000 worth of cover
I took out life assurance with Company X via cavendish online for £120,00 but pay £24 a month.
This will save me thousands of pounds in premiums and if I use this money to overpay will also save me even more in interest payments!
Money Saving Yes ?

jamesd

Wakey2008 wrote: »

Also look at it from a lenders point of view. They are lending a massive about of money and if someone dies unprotected do you think they want to sell the house? Particularly in today's market of common negative equity.

jamesd wrote: »

If the lender is concerned then the lender can offer a discount for buyers who have whatever forms of insurance they would like them to have. If they don't think it's worth a discount then the lack of monetary value shows how little they care about it.

Wakey2008 wrote: »

What waffle. Life policies are already very cost effective compared to other types of policies and the potential lay out on death is massive. You clearly don't know much about how mortgage lenders opperate. In most case the mortgage lender is a completley different company to the life company.

It was your argument that the mortgage lender might be unhappy. Let them do something about it if they are. The borrower's job is not to make them any happier than necessary to get the mortgage.

Perhaps you weren't recently surveyed by a mortgage lender asking questions about bundling policies of various sorts with the mortgage as an integrated product, with reduced rates as one potential incentive? I was.

Wakey2008 wrote: »

Life policy in place = policy pays off debt and property passes to family unemcumbered. Benfit to family/size of asset = £200,000.

So, what will it cost the family to buy the insurance to pay the family if the property buyers die? You're positing the family suffering, when the buyers themselves had no need of a protection policy, so let the family members who want to make some money out of the death pay the cost of that benefit.

Wakey2008 wrote: »

Yeah right, because the £5 - £10 saved a month by nothing having a basic life policy is really going to chop loads of cash off the mortgage isn't?

For £10 a month about a one year reduction in term for a £100,000 mortgage with a 5.75% average rate over its term. Being free of a mortgage a year earlier has some value and reduced risk for those with the mortgage.

Wakey2008

Complete and utter rubbish. If the term is say only ten years, £10 per month will not chop off 10% of the term. In fact it will only save them one month and that's assuming they live for the full term.

Life policies are for if they die within the term. You cannot make statements about them saving money on the term as a reason not to take life cover as life cover - need I explain this very simple concept to you in baby terms - is to cover for the impact of dying WITHIN the term. If they save their £10 per month and then die after 5 years what have they saved? Nothing because they'll still be a debt on the house and the beneficiaries of the estate will lose this from the estates value.

Before making statements you need to actually make some calculations and think out what you are arguing against actually does rather than just plicking figures out of the air.

jamesd

I suggest you run the numbers for a standard 25 year term using the calculator I linked to and you'll find that it's a term reduction by a little under a year.

Life policies aren't for dying within the term. They are for dying within the term if there are people who depend on you for a living, and who you want to provide for in that way. If nobody depends on you, say for a single person, life assurance is a waste of money that could be better used to improve the financial position if you aren't unfortunate enough to die. Things like paying part of the premium for PHI that will benefit you if alive and unable to work, or higher pension contributions.

What they will have saved over 5 years of not paying for life assurance is whatever benefit they have obtained by using the money for something more appropriate. A bit of PHI, higher pension contributions, a nicer birthday gift for those beneficiaries, some repairs to the property or whatever else they think will be of value and appreciated by them while they are alive and still able to benefit from it.

You're mixing up the interests of different people. The living who are paying the mortgage have that as their concern, unless they have someone who depends on them for a living. The potential other beneficiaries of an estate aren't normally a reason for having life assurance, unless for some reason the living have lots of spare money and want to possibly make them a gift when dead instead of doing it over time while alive and when both parties can appreciate the giving and receiving.