Mortgage Life Insurance Discussion

Former_MSE_Wendy

This thread relates to the Mortgage Life Insurance article.

Click reply to discuss.

dunstonh

When getting a new Mortgage Assurance quote (or quote to replace your existing cover), at the same time as for a quote for Level Term Assurance, which pays a fixed rather than decreasing sum. If the difference is small, plump for a level term policy instead, as it means if you trade up to a bigger house in the future you may not need much additional insurance. It also means, as well as paying the house off, there may be extra money for dependents.

I stuck a complaint in last year on behalf of a new client for a tied adviser sale of level term assurance that did exactly what you suggest there and the complaint was upheld. For most people it is not the best thing to do as it means paying more than they need to.

Future purchase potential for increased amount isnt applicable either as many life policies offer guaranteed insurability to increase the sum assured on house purchase but the snag with that and by taking on a level term is that most people change the term (by extending it) and you have to cancel the existing policy and go with a new one. Therefore making the whole period you paid more a waste of money.

redman20uk

Many policies have an extension option - eg Standard Life's - see

http://uk.standardlife.com/content/lifeinsurance/mortgage/mpp_make.html

Also, I think the FSA has said that mortgage term's are better than level term plans for mortgage business. Seems a bit strange though. I've got a level term and I know that each month I've got more life cover that isn't going to be used towards the mortgage if I die.

dunstonh

Some policies have an extension option. Some dont. I posted a bit more about that on the level term assurance thread in response to the comment that life assurance is all about price and nothing else.

You should only insure the need. No more, no less. Most people change their borrowing as they move houses etc and that usually means restarting the life cover. So, if you have paid more for a level term, it is money wasted. If you need extra, then use a level term to cover that need and that length of time.

MarkyMarkD

Whilst I very often agree with you, dunstonh, I have to say that I don't on this occasion.

I would side with Martin on this. The cost of level term cover is very little more than decreasing term in many cases, and the extra cover is useful for most people.

People generally have too little life assurance, not too much. I'd argue that for most main breadwinners with a family, paying off the mortgage in the event of early demise is only part of the issue. The extra £5 a month or whatever can pay for some very useful additional protection.

Your points about guaranteed insurability, though, are well made. I'm sure that a significant proportion of people automatically take out a new policy when they move house - not even realising that they could extend the amount and/or the term of their existing policy.



Anyway I came to this thread to post about Martin's general advice, not that specific point!

Martin, it's a good article and I'm all in favour of people checking prices rather than relying on what a tied adviser tells them. And reviewing cover every few years is also worthwhile given the way that premiums have fallen.

But, I think that the risk of people reading, and acting on, half of this advice but ignoring some of the rest of it is very great.

Anyone who thinks - "wow, I'm getting ripped off, I'll apply for a new policy and cancel the old one" is in big danger of being unable to get matching cover at the new (quoted) price, because they have some medical history they've forgotten about, or their weight has increased so they are a higher risk, or whatever.

Saying "it might cost you some more if you have experienced health problems" is a bit too vague. There are more circumstances than what some people would interpret as "health problems" which could lead to a policy being rated.

And people need telling LOUD and FIRMLY not to cancel their existing policy until they KNOW that they have been accepted on standard rate terms for their new policy - which might not be straight away. People don't always realise that they may pay standard rate premiums for a few months before the insurer fully assesses their medical history and decides that they should pay a higher amount - by which time the previous policy may be toast as may the supposed premium savings. I know that the article says to take out the new policy first, but again the instructions aren't clear enough IMHO.

nina_m

Hi,
Sorry if i have done this all the wrong way around, but this is the first time i've asked a question!
Basically about three years ago when i got my mortgage, I was told by the bank manager that taking their life assurance was a condition of me being accepted for the mortgage. At the time i was single with no kids and didn't see the need, but nonetheless agreed to the £17 mth in order to make sure the mortgage went through ok.
Is this legal? can I reclaim the unneccessary payments made for the last three years?
Thanks

MarkyMarkD

I don't believe it's prohibited for lenders to make insurance a condition of a mortgage. There are certainly (or at least were until recently) mortgage lenders requiring you to take their household insurance in order to qualify for some mortgage products.

But I suspect this bank manager was misleading you.

Presumably you have some sort of 'reason why' letter documenting the reasons for you buying the insurance? Somehow I doubt it says 'because you must have it to get the mortgage'. I think it's going to be very hard to prove that you didn't voluntarily buy the insurance.

schoolfundraiser

Having just lost my husband from a sudden heart attack in his sleep (no previous history hence a post mortem) and trying to claim on the two separate life policies to pay off the mortgage I am finding that the performance of individual insurance companies varies an awful lot.

Phoenix (was originally part of Abbey when we took it out) have been fine - paid up no problems within 5 weeks of his death and paid interest on the full amount from the date of his death to the date of their settlement cheque. All they needed was the death cert. Would defininitely recommend them.

Direct Line however have been a nightmare. Apparently they ask for a medical attendants report as routine no matter how small the claim and no matter how long you have had the policy with them. Hubby died on 22 March and I told them and sent the indemnity form and death cert back within a week. They then wrote on 6th April to say they were writing for a medical attendants report. When about a week later I rang to say why? I found out that they hadn't actually sent the letter to his GP until the 12th.

And it appears the questions they ask the doc mean that the patient's paper medical records have to be consulted rather than the more recent stuff on the computer. And of course when a patient dies the medical records are sent off to the district records office so now have had to be recalled and are not back yet. (I do wonder if they had contacted the GP sooner this would not have happened)

So now I am just about to make my 3rd mortgage payment since my husband's death because this insurance company is havering about a measly £22K on a joint policy which is 14 years old and was taken out when my husband was still a smoker (he quit 6 years ago). I have a feeling that after all this they will decline to pay out but I already have a solicitor lined up for then.

So check out how their claims process is operated, whether they pay out interest on claims and when they start to do so? How long they take to pay up and what hoops you have to jump through first?

Believe me pennies saved are not worth the hassle of a useless company should you ever need to make a claim.

MarkyMarkD

Whilst I understand that it's a difficult situation for you, sfr, I don't think that an insurer can be criticised for investigating the circumstances of an individual's death, particularly when it's at a relatively young age (I presume).

The only reason they will decline to pay out is due to non-disclosure - they aren't going to just do so on a whim. So I don't know why you "have a feeling that they will decline to pay out" as you stated that there was no past history to suggest your husband's cause of death was likely.

Getting a solicitor lined up at this stage is rather premature, IMHO.

wanna-b-rich

I am in a similar position to post #6 in that my mortgage lender insisted that I took out a life assurance policy from them in order for my mortgage application to be accepted. This was approximately 3 years ago.

Am I correct in my assumption, that I can cancel this policy and arrange a far less expensive policy with no repercussions from my lender?

MarkyMarkD

Yes, absolutely.