Mortgage and Life Insurance

Mr0

Question on insurances.

I already did a quick search on these forums and found a similar situation (the mortgage was even with the same bank Northern Rock). My father has a mortgage and both home and life insurance. All packaged by the financial adviser who helped him get the mortgage back in 2004. I actually do belief my father has been miss-sold, as he doesn't even know what it is that he is buying in to. The reply on other post suggest otherwise, and that some lenders may insist on life insurance policies when taking out a mortgage.

This is what puzzles me, I always thought that the bank will always have first charge over the mortgage should the worst ever happen, so their capital was always 'safe', assuming the house doesn't become worthless overnight. Then why would life insurance be needed.

The reason I belief he was miss-sold was because over the years he always believed that life insurance was compulsory, he was led to belief that this was a legal requirement, same as home insurance (although I am not sure if even that is legally required, or that banks just insist on it). This was the only reason he would have taken it up in the first place. His mortgage is with another bank at the moment, and I called them up last week and asked them if it was needed, and they said that it wasn't.

My question is do I have a case. Over the years he has paid over £6500 for this policy. To be honest, I am not looking for any compensation but just want to know to clear my mind. Since I told him that it wasn't a requirement to the mortgage he wanted to cut it off completely. I haven' actually dealt with life insurance before and I don't have any documents at all in relation to this policy. Should they have not been sending annual updates of the policy with the price increase? We saw the increased money going out of the bank but no supporting paperwork. How hard is it to cancel the policy, would it likely be a fixed annual contract or rolling so that he can cancel it any time.

I do understand generally the pros and cons of life insurance. My father is in his mid 50s now and his mortgage should end in 7 years or so, or sooner should I help him repay some of the money. I think that the next re-mortgage when his current term ends I would get him would be the last time for his current home. My main concern is that if he does cut off his life insurance, would banks actually see him as a higher risk and be more reluctant to give him a re-mortgage. I remember in 2009 when I got him his current deal I did not mention the life insurance at all, and the mortgage documents do not mention it (I think) either. Either way even if he has to stay on the more expensive SVR, it would still be cheaper to get off the life insurance (he doesn't like it at all).

Also about home insurance, I had a quick glance on the documents and found that he has been taking up emergency and legal cover as well. The mortgage bank he has right now did say that home insurance was needed, but they were vague on what kind of cover they want. Can he do away with the extras, as he doesn't think he needs them.

Thanks in advance.

kingstreet

How was this cover bought?

Was it an advised sale? Did the adviser analyse your father's circumstances and make detailed recommendations in writing?

In the first instance, your father needs to dig out the sales documentation from that point and study what it says.

Failing that, make a subject access request of the advisory firm and obtain copies of any documentation.

opinions4u

Look at the sale documentation. That will probably explain why life cover was sold. If not available, ask the selling firm to provide the paperwork.

It's a long time since I sold life cover. Back then an acceptable reason for sale was "to protect non-dependent beneficiaries". In other words, to leave the house to the grown up kids. Not sure if 21st century compliance rules would allow this though.

If there is a mis-sale, he'd be entitled to his premiums back, plus a bit of interest. Or he could simply cancel. With the obvious effect of loss of cover.

This is what puzzles me, I always thought that the bank will always have first charge over the mortgage should the worst ever happen, so their capital was always 'safe', assuming the house doesn't become worthless overnight. Then why would life insurance be needed

It's unlikely that the life cover is in place to protect the lender. But if the house is worth £90k and the debt is worth £100k a chunk of their capital is not "safe".

Also about home insurance, I had a quick glance on the documents and found that he has been taking up emergency and legal cover as well. The mortgage bank he has right now did say that home insurance was needed, but they were vague on what kind of cover they want. Can he do away with the extras, as he doesn't think he needs them.

He should be able to cancel the add-ons. He should also be able to shop around and buy elsewhere (some lenders charge a small fee, most don't). Don't underestimate the value of home emergency cover. While it has its exclusions, it can also be very handy.

kingstreet

AFAIK "to leave unencumbered property to next of kin" is still acceptable for those who are single, with no dependents. It would need proper documentation (factfind discussion notes including name of potential beneficiary) and I'd ask the client to sign a declaration confirming there was no compunction on them to take cover.

I've taken that kind of action for over 10 years, IIRC.

GhIFA

Mr0 wrote: »

Question on insurances.

I already did a quick search on these forums and found a similar situation (the mortgage was even with the same bank Northern Rock). My father has a mortgage and both home and life insurance. All packaged by the financial adviser who helped him get the mortgage back in 2004. I actually do belief my father has been miss-sold, as he doesn't even know what it is that he is buying in to. The reply on other post suggest otherwise, and that some lenders may insist on life insurance policies when taking out a mortgage.

This is what puzzles me, I always thought that the bank will always have first charge over the mortgage should the worst ever happen, so their capital was always 'safe', assuming the house doesn't become worthless overnight. Then why would life insurance be needed.

The reason I belief he was miss-sold was because over the years he always believed that life insurance was compulsory, he was led to belief that this was a legal requirement, same as home insurance (although I am not sure if even that is legally required, or that banks just insist on it). This was the only reason he would have taken it up in the first place. His mortgage is with another bank at the moment, and I called them up last week and asked them if it was needed, and they said that it wasn't.

My question is do I have a case. Over the years he has paid over £6500 for this policy. To be honest, I am not looking for any compensation but just want to know to clear my mind. Since I told him that it wasn't a requirement to the mortgage he wanted to cut it off completely. I haven' actually dealt with life insurance before and I don't have any documents at all in relation to this policy. Should they have not been sending annual updates of the policy with the price increase? We saw the increased money going out of the bank but no supporting paperwork. How hard is it to cancel the policy, would it likely be a fixed annual contract or rolling so that he can cancel it any time.

I do understand generally the pros and cons of life insurance. My father is in his mid 50s now and his mortgage should end in 7 years or so, or sooner should I help him repay some of the money. I think that the next re-mortgage when his current term ends I would get him would be the last time for his current home. My main concern is that if he does cut off his life insurance, would banks actually see him as a higher risk and be more reluctant to give him a re-mortgage. I remember in 2009 when I got him his current deal I did not mention the life insurance at all, and the mortgage documents do not mention it (I think) either. Either way even if he has to stay on the more expensive SVR, it would still be cheaper to get off the life insurance (he doesn't like it at all).

Also about home insurance, I had a quick glance on the documents and found that he has been taking up emergency and legal cover as well. The mortgage bank he has right now did say that home insurance was needed, but they were vague on what kind of cover they want. Can he do away with the extras, as he doesn't think he needs them.

Thanks in advance.

Regardless of whether the capital was "safe", if your father was the main earner, how would your mother have been able to keep up the mortgage payments? In these circumstances the result of the bank getting their money back would have been your mother, and possibly you and any other siblings, being homeless. You would need to go back to the original sales documentation, but generally, if you have a mortgage, and dependants, there will be a need for life cover.

Let_Us_See

There was no mention of there "being a mother?"

Mr0

Thank you for replying.

About the capital being safe, we have been fortunate and the value of the house has doubled since the time of purchase, even after the recent housing slump (we live in London ). But yes, back then I was younger, my mother would definitely not have been able to keep up with the mortgage payments.

The thing with insurance is, with the benefit of hindsight, it is easy to say that it was a waste of money but during the last 9 years he was actually covered. Insurance isn't something you consume so it is hard to say if it was worth it or not. If anything did happen in the last 9 years, I wouldn't be having this conversation. But I am certain that he did not know that he had the option of cancelling it any time during the last 9 years. He argued with me just recently that the bank might reposes his home if he breaches the requirements, that is after I spoke with Halifax.

My father is very trusting with advisers, accountants, those with professional titles in general and doesn't get into the details himself. It is unlikely that he has any documents left now. I will call up the company and ask for the information on his behalf next week.

Just wondering, IF, I were to make a claim, what would I actually do. Is this a claim against the adviser, their company or the policy provider. I don't think the life insurance providers did anything wrong as they just accepted a policy, we had no contact with them whatsoever.

What would be the costs of loosing such a claim. My father doesn't feel like getting into anything messy that could cost him more in the long run. He will definitely cut it loose though as money is a bit tight at the moment and he cant really afford it on top of the mortgage any more.

Thanks again.

opinions4u

my mother would definitely not have been able to keep up with the mortgage payments.

Good reason for selling life assurance.

Mr0

opinions4u wrote: »

Good reason for selling life assurance.

Well I am not saying life insurance is not useful. But it was still miss sold if my father was told that it was legally required. Those were the terms used. As I said, the policy would have never been bought if he knew that the mortgage providers did not need it. Also leading my father to believe that he had to keep it or risk loosing his house is also wrong.

kingstreet

What i set out in post #2 are the first steps to establish if you have grounds for complaint.

Once you have the documentation, it then needs to be checked to establish if the grounds for the sale are reasonable.

That will determine if a complaint to the adviser firm is likely to succeed.

Let_Us_See

So, finally........there was a mother! Further more you admit she couldn't have afforded the mortgage payment in the event of your father's death.

Rather than making a complaint, I think you should applaud the adviser for protecting your mother and mortgage. I can't help feeling that you have the "issue" and not your father. open your eyes and look at the wider aspects and not just the ££££ signs.