Mortgage Ins question

aliasojo

Clarification required please. (This was an old product set up years ago so no need to advise on suitability now etc.)

Assume a policy that was intended to cover the monthly mortgage payment each month, was taken out at the start of the mortgage.

This policy included:

Initial Life Cover (amount equal to the total amount owing on mortgage)

Initial Basic Critical Illness Cover (again, equal to total mortgage amount)

Mortgage Payment Benefit (equal to monthly mortgage cost)

Unemployment Cover (equal to monthly payment cost)

It was set up to run for a fixed 10 years which was the length of the mortgage.

Halfway through that period, the mortgage was paid off. The insurance company was called to tell them the mortgage had been paid off and to ask what happens with the policy and the rest of the benefits from then on.

Unfortunately it was someone in a foreign call centre who was dealing with this and they didn't seem to understand what was being asked. They said they could turn this policy into a savings plan instead but that didn't seem right so they were told to leave the policy to run 'as is'.

6 months after that, the property was remortgaged to raise cash for an unforeseen emergency. Nothing else had been done with regards to looking into the policy or gaining clarification at the time due to the stress and upset involved in the run up to this emergency.

Question 1:

If the homeowner had been made redundant after the remortgage, would the policy have paid out the original amounts, given that the policy was still running? Or would the fact the original mortgage had been paid off, altered things and no payout would have been made?

Question 2:

Also, if the company had noted the first mortgage was cleared but the plan was still running, would the other parts of the policy still have paid out? (The critical illness part for example?)

kingstreet

Yes to both.

A policy is not directly linked to a particular mortgage. If decreasing cover it may not have paid out enough to repay the whole new mortgage but would have paid out the benefit which applied at that time.

aliasojo

Many thanks for your reply.

dunstonh

A lot of people keep their insurances running after paying the mortgage. It can be because they have premiums set at a time when they were younger or they are no longer in a healthy position to get new insurances etc.

Quite normal, very common and as insurances are standalone, then there is no issue as mentioned above. The exception to that is MPPI where some lenders "own" product will only cover their own mortgage.

aliasojo

It's quite frustrating to read your replies as it would seem inaccurate advice was given previously with regards to the unemployment/mortgage aspects and decisions were made on the back of this inaccurate advice which resulted in life changing circumstances.

Clearly it pays to educate yourself well on all matters financial and not simply assume what you are told 'must' be accurate.

dunstonh

It's quite frustrating to read your replies as it would seem inaccurate advice was given previously with regards to the unemployment/mortgage aspects and decisions were made on the back of this inaccurate advice which resulted in life changing circumstances.

It is possible that the correct information was given. Not all lenders "own" MPPI has that restriction.

Clearly it pays to educate yourself well on all matters financial and not simply assume what you are told 'must' be accurate.

That or use an IFA. Tied agents only have a remit to discuss their own product and not those of others (apart from generic info). An IFA covers everything and is responsible for advice given, not just at point of sale but also on any servicing that follows. The use of a tied agent typically sees a sales rep used at the start but then a call centre for servicing and you get a lot of misinformation from call centres. People dont want to pay for quality nowadays.

aliasojo

dunstonh wrote: »

It is possible that the correct information was given. Not all lenders "own" MPPI has that restriction.


That or use an IFA.

An IFA was used, he originally arranged the mortgage and also separate insurance cover. (Not through the mortgage lender.)

The possibility of the mortgage being cleared and then having to remortgage wasn't expected so what would happen in this instance was never discussed.

The chap had retired when the remortgage came about and the insurance company had been contacted directly to query the situation.

As previously said, foreign centre worker seemed to have difficulty grasping the issue and stated there was no benefit in keeping the policy going since the mortgage was paid off and she could turn it into a savings policy instead. When asked about the other aspects of the policy, she just kept repeating how she could turn it into a savings vehicle.

Not to worry, what's done is done.

Thanks for the replies.