Is Death-In-Service Cover allowed for Mortgages?

joemac5367

I'm in the middle of a complaint to the Financial Ombudsman regarding what I see as mis-sold life assurance cover for a mortgage given to my parents.

They had sufficient cover for the mortgage from a Death-In-Service benefit from Jaguar cars but the adviser sold them the cover anyway (commission based of course). My parents say they were unaware that they had been sold this policy at all, and that my dad thought the payments he had been making were for buildings insurance.

We've been through all proper channels to complain and are now waiting for an adjudicator to get the time to review the decision of one of their initial panel.

Sadly though in his recent emails I believe he is likely to side with Aviva in this matter on the grounds that:

"Death-In-Service cover is not considered suitable for mortgage protection where there is a new loan which increases financial liabilities."

I have pointed out that the mortgage was subsequently moved from Bradford & Bingley to Yorkshire (in the mid 90's) and we had a letter from Yorkshire showing that they did accept it. So clearly at least one lender did accept it as 'suitable'.

So my question is: What is the stance of lenders on acceptable mortgage protection? And for bonus points what was Bradford & Bingley's stance on it? (They've been swallowed up now by Santander so can't pick up the phone to B&B anymore)

I'd like to be able to provide the evidence so the Ombudsman can't use that argument to bin my complaint. There's about £7000 of payments at stake.

Thanks if you can help.

Senior_Paper_Monitor

When did the sale occur ? Was the policy assigned to the mortgage in any way ?

Who arranged/sold/advised on the mortgage and insurance ?

What did your dad think the actual payments for the building insurance were for ?

dunstonh

Its generally accepted that Death In Service does not need to be included in a shortfall analysis for mortgage provision. Its always been that way and its right to be.

My parents say they were unaware that they had been sold this policy at all, and that my dad thought the payments he had been making were for buildings insurance.

Sorry, I find that hard to believe. Your parents would have had to answer a medical questionnaire and have given GP details. They would have been issued with an illustration at the time and again on acceptance and commencement with the cancellation rights along with a policy document to follow. So, its pretty hard to mix up that with house insurance.

I have pointed out that the mortgage was subsequently moved from Bradford & Bingley to Yorkshire (in the mid 90's) and we had a letter from Yorkshire showing that they did accept it. So clearly at least one lender did accept it as 'suitable'.

Totally irrelevant. The lender only wants their debt repaid. They dont care the source of the money. They are also in no position to provide advice. So, that can be ignored.

What is the stance of lenders on acceptable mortgage protection?

There isnt one. It's down to the individual to decide what they want.

And for bonus points what was Bradford & Bingley's stance on it?

same as above.

I'd like to be able to provide the evidence so the Ombudsman can't use that argument to bin my complaint. There's about £7000 of payments at stake.

Basically, the only real chance of success is if you can show no financial need for life assurance. There does sound like there was a need based on what you have said. The FOS will probably be thinking this is an opportunistic complaint trying to get money back because no claim has been made. They wont tell you that to your face but you can bet your life they are sitting there thinking it.

joemac5367

Senior_Paper_Monitor wrote: »

When did the sale occur ? Was the policy assigned to the mortgage in any way ?

Who arranged/sold/advised on the mortgage and insurance ?

What did your dad think the actual payments for the building insurance were for ?

The sale was in 1988-ish. No, I don't believe the policy was assigned. The estate agent asked if they'd like help with arranging a mortgage and as they had no advice up to that point they said yes.

My dad thought the payments were for insurance of the building. So if it burned down etc it would be covered.

Senior_Paper_Monitor

.... and he thought the actual house insurance payments were for what ?

I agree with Dunstonh - doesn't stack up.

joemac5367

dunstonh wrote: »

Sorry, I find that hard to believe. <snipping the rest>

Dunstoh, I don't really care for the tone of your 'I find that hard to believe' comment. If you're saying they're lying they're not. The only time they became aware of Aviva's hand in this is when they got a letter a year or so ago when Norwich Union changed name and they said 'Not to worry the name has changed but everything else with your policy is the same' When they found out what had been happening they cancelled the policy straight away. There was still about 5 years left to run on it. The policy would never have been claimed on as they did not know of it's existence.

We have documentary proof from about 14 years ago when they changed their mortgage to Yorkshire Bank. They tried to sell them life cover (on the basis they had none) but confirmed they would accept the death-in-service instead. Clearly if my parents had been aware of the life cover they would have told Yorkshire that.

And it is not totally irrelevant. The suggestion is that lenders don't accept D-I-S as cover for mortgages. They do and my Yorkshire letter proves that.

There was no 'need' for the cover. I would challenge you to justify any 'need' for it in these circumstances. How can it be 'right' to ignore Death-In-Service money? I have a copy of the financial illustration from the advisor and it noted that money on it and then just ignored it without further comment.

However I'm after help here, not veiled remarks that you think we're lying and are just chancers looking to make a fast buck. Please don't bother replying to this any further.

If anyone else can help with positive advice I'd still be grateful.

joemac5367

Senior_Paper_Monitor wrote: »

.... and he thought the actual house insurance payments were for what ?

I agree with Dunstonh - doesn't stack up.

It's my understanding that my mum was paying the 'actual' insurance for the house. So the 'actual' insurance for the house was going towards the 'actual' insurance of the house. The 'not' insurance for the house was going towards a policy for life assurance they didn't know they'd signed up for.

Doesn't stack up meaning ...what? They're lying? I thought this place was to help!

To the first 2 posters, I get it. You don't believe them so let's leave it at that. I'm looking for help.

Burridge60

joemac5367 wrote: »

They had sufficient cover for the mortgage from a Death-In-Service benefit from Jaguar cars but the adviser sold them the cover anyway

Death in Service cover normally only protects the employee. Were they both employed by Jaguar Cars? In some cases Spouse cover used to be provided too but this was rare.

Had either died after leaving the service of Jaguar Cars they would not have had this cover. If they did not have separate mortgage cover would you not now be complaining that the adviser had not "sold" them any cover?

Death in Service is often discounted for mortgage and loan protection for this very reason.

I know of few people that have changed jobs because the death in service plan was better somewhere else it is usually the higher salary that tempts them away from "free" benefits which they fail to value.

In 1988 some lenders did require life cover to be assigned or evidenced to them but since then matters have been far more relaxed. Lenders now rely on a disclaimer in the mortgage offer recommending that you seek advice to ensure that the mortgage is adequately protected on death and that it is the borrowers responsibility to do so.

Moglet

I opted not to take life cover as it was a sole mortgage, I have no dependants and I have death in service cover more than the mortgage. Halifax were more than happy with that and just took my word for it.

My loan to value was quite low though, that might have swayed things. 50% to 75% depending on how much of the retention I draw down.

dunstonh

Dunstoh, I don't really care for the tone of your 'I find that hard to believe' comment.

I am sitting here thinking exactly the same as what any complaints handler at the firm or FOS are thinking.

We have documentary proof from about 14 years ago when they changed their mortgage to Yorkshire Bank. They tried to sell them life cover (on the basis they had none) but confirmed they would accept the death-in-service instead. Clearly if my parents had been aware of the life cover they would have told Yorkshire that.

None of that matters as lenders are not providing the advice. They would accept death in service, life assurance, lottery win, gift from a friend or whatever.

And it is not totally irrelevant. The suggestion is that lenders don't accept D-I-S as cover for mortgages. They do and my Yorkshire letter proves that.

It proves nothing. You are mixing up what the lender wants and what best advice is. The adviser isnt that interested in what the lender wants. The adviser is interested and required to give best advice. And that is how the complaint will be measured. Did your parents have a financial need for life assurance. If yes, then recommend a life assurance policy. If no, then do not recommend it. Its as simple as that.

There was no 'need' for the cover. I would challenge you to justify any 'need' for it in these circumstances. How can it be 'right' to ignore Death-In-Service money? I have a copy of the financial illustration from the advisor and it noted that money on it and then just ignored it without further comment.

Death in service is discretionary. It's purpose is to replace lost income and reduced pension. It can also be paid out to other parties and not into the estate. Its also only 4x salary as a maximum.

However I'm after help here, not veiled remarks that you think we're lying and are just chancers looking to make a fast buck. Please don't bother replying to this any further.

Sorry, you are not getting rid of me just because you dont like the answers. The fact is that you have shown no evidence of mis-sale and seem to be mixing up what an adviser should advise and what a lender wants. Are you really honestly saying that a family with a mortgage has no life assurance need?

To everyone else posting after this, please be aware that the OP only wants to hear what he wants to hear. Please do not waste your time posting facts or faults in his logic. Please feel free to offer him cuddles and support and post totally useless information that will be of no help as that is only what he wants.

SandC

I would have to agree that it looks like a simple misunderstanding took place, rather than a misselling.

For the years concerned, if your mum was paying household insurance and your dad thought he was then they would have been overinsured - or they didn't communicate between each other and realise the mistake earlier.

I honestly don't think this sounds like someone pushing the life cover. I don't think the issue is actually the death in service benefit - it will be very difficult to prove that your dad mentioned this when he was sorting out the mortgage, bearing in mind that household insurance was in place throughout the period concerned.

Edited, I notice that the paperwork does mention the DIS money. However, the above still stands regarding the property already being insured.