Life Insurance for Mortgage Query

Siovas_2

Hi,
I am looking for some advice & guidance on whether to simply cancel a life insurance policy or whether there are any grounds for recompense.
11 years ago my then partner and I took out an interest only mortgage (£67k) with Santander (then Abbey National) and, as one had to then, took out life insurance for what I thought was for the mortgage (£120/month). We also took out a decreasing term loan (£40k) (over 10 years) on the mortgage which also had life insurance (£36/mth). We were both overweight and smoked.

Last year the decreasing term loan finished and the life insurance also ceased which was great.
I telephoned Royal London (as Santander's no longer manage the policy) and they confirmed that the premium for the decreasing term would no longer be collected. I asked what could be done since my partner and I had not smoked for 10 years and was told that we would have to cancel the policy and take out new life insurance for the health improvements to be taken into account. I was a bit disappointed because our premium was still high but accepted the situation.

Last month I changed our mortgage to a repayment and again telephone Royal London to ascertain whether the premium would reduce as the payment. I was informed that the policy was for the person(s) not the mortgage and as such would not cease when the mortgage was paid whether it was interest or repayment. I was surprised because I had always believed that it was linked to the mortgage.
I have always been slightly concerned about the policy because there is a ten year age difference between my husband & I when the mortgage was meant to finish it would be 6 month after his 70th birthday and Santander's insurance doesn't cover individuals over 70?? Why would an organisation offer insurance to someone when it will not be valid for the last six months of their mortgage??

Since changing to repayment I am trying to pay more to reduce the term to below my husband's 70th birthday but I have realised that it's academic because the mortgage is linked to the individual not the mortgage as I thought. Also, since he would be over 70, they presumably wouldn't pay out anyway. It's a joint policy. So if I pay of early, so what, the life insurance just continues.

My husband and I both have life insurance with our respective companies.

I appreciate that this is a garble but I am thinking of just cancelling the policy with Royal London but a part of me feels a little aggrieved that a) the policy was never linked to the mortgage as I thought and b) didn't cover us in the last six months of the mortgage anyway.

If you can offer any advice it would be greatly appreiated.

Kind Regards, Siovas.

dunstonh

Last month I changed our mortgage to a repayment and again telephone Royal London to ascertain whether the premium would reduce as the payment. I was informed that the policy was for the person(s) not the mortgage and as such would not cease when the mortgage was paid whether it was interest or repayment. I was surprised because I had always believed that it was linked to the mortgage.

The intention is to use it for the mortgage but there is no direct link and lenders ceased to require assignment of policies by the mid 90s (typically - some later). It is possible that at the point of sale, it was mandatory but nowadays it is not.

I have always been slightly concerned about the policy because there is a ten year age difference between my husband & I when the mortgage was meant to finish it would be 6 month after his 70th birthday and Santander's insurance doesn't cover individuals over 70?? Why would an organisation offer insurance to someone when it will not be valid for the last six months of their mortgage??

Santander were/are a tied provider and can only offer their own products. Their remit it to offer the most suitable product in their range. Not the most suitable product on the market. Your problem is that you saw a tied provider with a limited product range when seeing an IFA would have got you the right cover (and would have been cheaper)

If you no longer need the life assurance then cancel it. If you do still need it then keep it or see a local IFA and get a replacement for one that does suit your needs.

Siovas_2

Thanks for your reply.
My question is basically was I mis-sold an inappropriate product? I wanted life insurance linked to the mortgage not linked to me. I don't care that I still have life insurance even when the mortgage is finished.
I assumed that the insurance was fixed because my mortgage was interest only but when I changed recently to a repayment I thought that when the mortgage was finished I would stop paying insurance.

dunstonh

I wanted life insurance linked to the mortgage not linked to me.

No such product exists. So, no mis-sale.

Siovas_2

OK, thanks.

Just out of curiosity.
I had a decreasing loan on the mortgage and that had life insurance protection which ceased when the loan finished.
Was it just my misunderstanding that I thought that the life cover for the other (interest only) loan would also cease when the loan was converted to a repayment and ultimately paid off?

lisyloo

I had a decreasing loan on the mortgage and that had life insurance protection which ceased when the loan finished.

As you now know they are not linked.
The mortgage finished at the end of the mortgage term and the insurance finished at the end of the insurance term which were set up to co-incide.
But they were still two seperate policies just with the same end date.

Was it just my misunderstanding that I thought that the life cover for the other (interest only) loan would also cease when the loan was converted to a repayment and ultimately paid off?

The life cover will cease at the end of the term of the insurance policy.
Most likely this matches the term of the orginal mortgage.
They are NOT linked so if you reduce the term of the mortgage, then the insurance will stay in place.
There is nothing wrong will having extra insurance if you want it, so you could keep it in place and in the event of death you have a lump sum.
Alternatively you could change the insurance arrangement which usually means cancelling and taking a new policy. If you have any serious healh conditions it MAY be best to stick with the old policy as they would not be covered under a new one.
An alternative is simply to cancel and the survivor deal with a small mortgage (insurance or not obligatory).
You may need advice on what is best, but no the insurance term does not change if you change the mortgage term, they are not linked in any way.

dunstonh

I had a decreasing loan on the mortgage and that had life insurance protection which ceased when the loan finished.
Was it just my misunderstanding that I thought that the life cover for the other (interest only) loan would also cease when the loan was converted to a repayment and ultimately paid off?

Some secure loans and personal loans do factor insurance into the loan itself. This is generally considered bad as they can front load the insurance and charge interest on it. It is one of the most common reasons for PPI being refunded as they should be set up standalone.

If it was a standalone policy then it would be set up to match the loan (just as mortgage life assurance is). So, on redemption at the normal date, the life cover would end at the same time.

So, if you take out a 25 year mortgage for £100k and take out a decreasing term assurance for £100k over 25 years then both will end in the same month. If you do the same over 5 years then both will end after 5 years. However, if you repay the debt early, the insurance will carry on with the terms you agreed when you took it out.

Siovas_2

Thank you so much lisyloo and dunstonh for your replies.
I now understand the situation and can make an informed decision on how to proceed.
Regards.