life insurance with mortgage

copperheadjack

Hi I hope someone can help me on this one.
My mum and Dad took a remortgage about 5 years ago with a mortgage broker and they were told that because they were 60 to be able to get the mortgage they had to take a life policy out for each of them. As they were still working and still are can you tell me if this is true or was it just the broker trying to make a few extra quid? I always thought that if anything happened to them and they couldnt pay the mortgage then they just took possesion of the house.

Senior_Paper_Monitor

IF the broker said they had to do it to get the mortgage then they were lying (BUT unless it was put in writing then that will be difficult, if not impossible, to prove).

In the absence of a written statement then the broker will simply say he/she strongly encouraged them to do so, told them it was really sensible to do so etc - and frankly he/she would be able to justify that stance as good advice in my opion.

As to 'few quid' - it would certainly have been quite a few !!



The above is probably somewhat of a simplification as I don't know the details of their financial circumtances, nor the form the insurance was written in - but as about as detailed as the simply background and question permits.

copperheadjack

Hi thanks for your reply, its a policy that decreases as the mortgage amount decreases, and only pays out on death. If the mortgage finishes and both are still alive then they get nothing. They have no missed payments on their mortgage everything is upto date. The policy add £100 a month onto their mortgage though and they were wondering if they canceled it would it affect their mortgage. I have told them to contact the mortgage company and ask them if it compulsary to have this policy.

opinions4u

I doubt there's anything to stop a cancellation now.

But if one of them died, how would the other be able to pay the mortgage from the reduced income that would probably follow?

If they do cancel, use the premiums saved to reduce the debt further.

Thrugelmir

copperheadjack wrote: »

As they were still working and still are can you tell me if this is true or was it just the broker trying to make a few extra quid? I always thought that if anything happened to them and they couldnt pay the mortgage then they just took possesion of the house.

Looking at the financial facts. How much do they owe? Is the mortgage interest only? When is the mortgage repayable by?

If one of your parents dies, as will happen, how will the remaining one afford the mortgage?

copperheadjack

the mortgage is a repayment and they have 10 years left as they took it over 15 years I think the outstanding amout is approx £45'000. If my dad dies in service there is a big payout, if he die after retirment his pension is still paid which he has 2 off from different places of work over the years. If my mum died first then my dad would continue to pay the mortgage out of his works pension he receives at the moment.

Thrugelmir

Wouldn't your mother receive a dependents pension which is normally 50% of the full pension?

Peter_L

Having a policy in place is a sensible idea as you never know - my dad's polcy paid out when he died which my mother couldn't afford to otherwise. What I would do is to shop around and see if they could get a similar/same policy for cheaper ...

holly_hobby

copperheadjack wrote: »

a mortgage broker and they were told that because they were 60 to be able to get the mortgage they had to take a life policy out for each of them. As they were still working and still are can you tell me if this is true or was it just the broker trying to make a few extra quid? I always thought that if anything happened to them and they couldnt pay the mortgage then they just took possesion of the house.

It is not unusual for the mge lender to require life assurance to be effected in support of the mge application (with buildings insurance a compulsory ins that must be taken).

This means that they avoid issues on 1st death - the surviving partner being unable to afford the mge - and in reality their own protection in case it goes to repossession.

So it itself I don't consider it bad advice depending upon what was sold to them.

copperheadjack wrote: »

Its a policy that decreases as the mortgage amount decreases, and only pays out on death. If the mortgage finishes and both are still alive then they get nothing.

This is a Decreasing Term Assurance and the cheapest form of death protection - typically written in support of a repayment mortgage. So this in my opinion is not a mis-sale - unless your parents had sufficient existing insurance, applicable for the whole term of the mge, already in place.

copperheadjack wrote: »

The policy add £100 a month onto their mortgage though and they were wondering if they canceled it would it affect their mortgage. I have told them to contact the mortgage company and ask them if it compulsary to have this policy.

The policy prem is high due to their ages at commencement.

Whether this was/is the cheapest DTA policy available to them only a whole of market broker will be able to tell you that.

If they cancel, as already posted by others - what protection is there already in place ? Or - if your parents wish to just "wing it" and have no death mge protection - how will the surviving partner continue to meet the mge payments (if they don't wish to sell the property etc, upon 1st death of the couple ?).

There are solutions to the situation - but I feel a forum may not be the best place to give in depth advice needed - especially considering your parents ages.

Have they/you (if you wish to be present) considered a chat with a whole of market broker, who will evaluate your parents protection and finance needs and product a tailored and professionally quantified solution - which may be a cheaper DTA or even a Level Term Assurance if the prem differential is minimal - having a LTA may also give them a sum in excess of paying the existing mge balance off on 1st death (which I hope is many, many yrs away)

Hope this helps

Holly

copperheadjack

Thrugelmir wrote: »

Wouldn't your mother receive a dependents pension which is normally 50% of the full pension?

Yes but he will receive 2 different pensions which are quite good.

copperheadjack

Thanks Holly
Its not being mis sold that I wanted to know just did they really have to have this policy as my mum and Dad are adamant on canceling if it is not compulsary. I just didnt want them to cancel and then have trouble with the mortgage company.