Bit confused over advice on Life Assurance

robrymond

I'll try and explain this as straight forward as I can. So bear with me.

We purchased a house last December on the FirstBuy scheme for £137,500 (that was the cost minus our deposit). When we had a financial adviser round to calculate costs and help with the application process, he also went through the life assurance process as well.

We signed up to a policy with Critical Illness cover for £32 a month. However earlier in the year I was made redundant and to cut costs, this month we decided to choose a Decreasing Mortgage Protection insurance.

We then had a call from the broker agent asking why it had been cancelled. Following that there were two text messages from the adviser himself saying that Decreasing Mortgage Protection is in-adequate on the scheme we are on.

I understand it is slightly different, however surely we don't want FIXED life cover of £137,500 when each month we pay off the mortgage.

So therefore I presumed Decreasing Protection would be adequate. I know that we 'owe' the scheme 10% of the cost after 5 years, but in no terms did it state that the life cover we took out via him would cover this amount which increases monthly.

Bit confused. Half of me says that he has lost commision, why bother after so long to pester us. The other suggests he may be correct because we are on the FirstBuy scheme.

So, do we need FIXED Life Insurance, or Decreasing Mortgage Protection, bearing in mind we have no other assets that need protecting etc?

magpiecottage

The advise will have over three quarters of his commission clawed back if you have cancelled so soon. He may be able to recover that loss from you (it depends on the terms and conditions you agreed to).

You almost certainly have other needs that ought to be insured but a decreasing term assurance is, in isolation, better than a level policy for a repayment mortgage

robrymond

So his advice over Firstbuy being different is null and void then? It certainly didn't make sense to me even if we don't actually own 10% of the house in theory, i still couldn't work out why we'd want level cover for 25 years!

They haven't specified that he will want to claim money back...Taylor Wimpey were the house builder and told us to use these people and they haven't contacted us.

We were thinking about having Income Protection insurance this time now I have a job again which I feel will benefit us both more in the short term.

dunstonh

You almost certainly have other needs that ought to be insured but a decreasing term assurance is, in isolation, better than a level policy for a repayment mortgage

I have heard the FOS have been upholding complaints from people who took out a level term assurance instead of a decreasing term assurance on a repayment mortgage.

The requirement of any adviser is to recommend a product to fit the need and recommend the most suitable product. A level term assurance would fit the need but a decreasing term assurance fits it better.

kingstreet

This is a difficult one to call.

The borrower has a nil interest loan, then an interest-only loan, plus a repayment mortgage on top of it.

I can understand the reason for doing a level term assurance, rather than a decreasing term and the alternative, doing a level term plus a decreasing term feels far too cumbersome.

The OP needs to bear in mind he owns 100% of the property and although he may not be making payments on some of it, he has a mortgage for the amount not covered by the deposit he paid.

robrymond

Thanks for the advice. Kingstreet is correct in that the value of the decreasing mortgage is based on 100% of the home cost and that is how I calculated the decreasing mortgage protection.

See I was naive before about these products...so we just went along with what was said.

It seems from what you and others say, that this decreasing mortgage protection is best but not 100%. By the middle of next year when income has sorted itself out, I could plan to revert back to the fixed cover providing it is adequate.

Kingstreet would you suggest taking out a level product for the 10% that is on a loan basis?

magpiecottage

robrymond wrote: »

Kingstreet would you suggest taking out a level product for the 10% that is on a loan basis?

I'll get in ahead of Kingstreet and say you should speak to an Independent Financial Adviser who can look at the whole of the market (they will give you a document when you first see them that will tell you whether they do this for investments, whether they do it for insurance and (if they offer them) whether they do it for mortgages.

Such an adviser will be able to work out the most cost effective solution for you.