Is Death-In-Service Cover allowed for Mortgages?

dunstonh

I can't comment on how someone ended up with a policy that they didn't want without their knowledge but if someone wants to rely on their death in service benefit and the lender hasn't stipulated a policy assigned to them, then that should be their choice - shouldn't it?

Then they should provide evidence to support that. However, there appears to be none. We have couple with a child with only death in service saying 20 odd years later that they didnt want life assurance despite there being a clear financial need for it.

So, you have an adviser who is able to show a clear financial need for the policy vs a couple with no evidence to support their case in a fairly unlikely scenario trying to use irrelevant points to support their complaint. Put yourself in the position of the complaints handler where you are having to look at the evidence (what exists - noting that the reference to DIS from the adviser actually helps the adviser more as it shows it was noted and considered) and make a judgement call.

Moglet

Then they should provide evidence to support that. However, there appears to be none. We have couple with a child with only death in service saying 20 odd years later that they didnt want life assurance despite there being a clear financial need for it.

So, you have an adviser who is able to show a clear financial need for the policy vs a couple with no evidence to support their case in a fairly unlikely scenario trying to use irrelevant points to support their complaint. Put yourself in the position of the complaints handler where you are having to look at the evidence (what exists - noting that the reference to DIS from the adviser actually helps the adviser more as it shows it was noted and considered) and make a judgement call.

I'm not trying to be difficult here and I'd agree with others that not realising a policy was in place for years and years is questionable at best.

My points are more to do with the question asked, is death in service allowed for mortages and in my experience it is.** My own recent posts surround a policy that wasn't assigned to the lender.

I suppose what I'm struggling to get my head around is who decides what *financial need* is and how much it is?

**edited to add, it's not that death in service can be acceptable but that no cover can be acceptable.

dunstonh

My points are more to do with the question asked, is death in service allowed for mortages and in my experience it is.

It is and has been for some time as lenders do not care what provision you have in place (although in the past there were lenders who would require a policy to be assigned to them). That is what makes it irrelevant to the complaint. If the lender insisted on it then it is considered important but if they didnt then it just comes down to financial need. The financial need has nothing to do with what a lender doesn't want. Needs look at what is required. Not what isnt required. The lender didnt need income protection but they could have had it. The lender didnt need critical illness cover but they could have had it. The lender didnt need them to set up a PEP but they could have had one. The lender didnt need a purple balloon with yellow spots on it but they could have had that as well.

I suppose what I'm struggling to get my head around is who decides what *financial need* is and how much it is?

Its actually not at all difficult to see if there is a financial need. In the event of death is there anyone that would be financially worse off? if the answer is yes, then you have a financial need. If the answer is no then there isnt.

If you look at this case, based only on what we know, there was a married couple and a child. So, there is certainly the potential for financial need. i.e. if one income was to go away would the other be enough? Would the surviving spouse continue to work or stop to look after child? If carrying on working then who is going to pay for childcare? How is the loss of income and future pension going to be made up?

All we know is that they were taking on a major liability, had a family and had no life assurance other than a small amount of death in service (that at maximum was 4x pensionable salary - although often is less). So, would 4x one salary make up for 30 or so years of lost income from the dead spouse? No. Would it replace the lower pension income due to future lack of qualification? No. Is the DIS guaranteed to be paid to the surviving spouse? No. Would the DIS be enough for the surviving spouse to take time off work for childcare or cover costs? No. It may go towards one of these things but covering everything it will not. Then on top of that, you then have a new mortgage liability.

So, removing the emotion from everything you have to look at the facts. Was there a financial need for it? The answer is yes. Was the adviser right to recommend it? The answer is yes. Is it normal for people to have life assurance on a mortgage? The answer is yes. Is there any evidence that the couple didnt want the life assurance? No.

getmore4less

I don't have the papers to hand but I'm sure it was after 1988 now I think about it. I had finished Uni in 1992 and they hadn't moved then so it was around 1992/1993


Were there any dependant children

If not then the need for life cover reduces significanlty.


The reality is that life cover is less important than long term disability since this can take out 2 incomes.

joemac5367

getmore4less wrote: »

I don't have the papers to hand but I'm sure it was after 1988 now I think about it. I had finished Uni in 1992 and they hadn't moved then so it was around 1992/1993


Were there any dependant children. If not then the need for life cover reduces significantly. The reality is that life cover is less important than long term disability since this can take out 2 incomes.

No I was 21 ish at the time. There were no financial dependents. My parents were aged around 40 with no health issues. The mortgage was for 45K and that was what both the DIS amounts were. In the event of either death the mortgage would have been paid and the other person would have had their own salary to live on.

dunstonh

No I was 21 ish at the time. There were no financial dependents.

so, had you moved out at that point?

Errata

my dad thought the payments he had been making were for buildings insurance.

Did he never wonder why the premiums hadn't increased as house prices went through the ceiling ?

Leon_W

The problem with DIS benefit is that it is not gauranteed to pay out if you die. If you no longer work for the company or have been made redundant or sacked then sorry, no payout.

A worst case scenario would be that you suffered a serious heart attack but returned to work. A year later you are made redundant or sacked. The DIS benefit disappears and you cannot replace the life cover because of pre existing medical conditions.

Not recommending gauranteed life cover, especially for a mortgage and just relying on DIS benefit is not good financial planning in my view.

Regards

joemac5367

Leon_W wrote: »

The problem with DIS benefit is that it is not gauranteed to pay out if you die. If you no longer work for the company or have been made redundant or sacked then sorry, no payout.

Thanks for your reply Leon. Yes indeed but my answer to that was that the life assurance only pays out as long as you pay the premiums. If I lost my job and couldn't afford to pay the assurance then likewise, no payout in the event of death. In addition, you could well not be able to afford the house anyway if you lost your job. so the life assurance would be a moot point.

A worst case scenario would be <snip>
Regards

We can paint scenarios from utterly trivial to nightmares. Then you make a judgment call about the things you wish to protect against and the likelihood of them happening vs the financial affordability of that protection. Peoples' opinion on where the line is crossed will vary. No one opinion is right for everyone. In my parents' circumstances they did not feel that the assurance was a bet they wished to take.

Burridge60

A message for us all

https://forums.moneysavingexpert.com/discussion/comment/40642072#Comment_40642072