Mortgage decreasing term assurance with critical illness

Martini45

Hi,

When I got a mortgage I had a joint life policy (Mortgage decreasing term assurance with critical illness ) with my husband. Then in 2007 we were advised in my bank also who I have the mortgage with, that my husband and I would benefit from having two separate policies. I have been sorting my paperwork and realised that as my mortgage is held jointly with my husband, the policy would only pay out once?

Have we been mis sold a product?

ACG

Not really. There is no set way of doing it.
2 policies = 2 potential payouts but 2 lots of premiums.
1 joint policy = 1 potential payout but only 1 premium.

Personal preference. I deal with a lot of first time buyers and tend to lean more towards 1 joint policy purely because of an affordability point of view but there is nothing to say it should be one way or the other.

Martini45

Hi,

I only have one mortgage with two policies covering it so if I were to die first, and the policy pays out then my mortgage no longer exists as it would of been paid off, but what would happen to the remaining policy ?

dunstonh

Martini45 wrote: »

Hi,

I only have one mortgage with two policies covering it so if I were to die first, and the policy pays out then my mortgage no longer exists as it would of been paid off, but what would happen to the remaining policy ?

It can carry on if still required. Or it can be stopped.

jamesd

What that means is that you have been sold more insurance than you needed: twice the value of the mortgage. It is possible that it was cheaper to buy that way than to buy a joint policy. Or not. What were the prices?

If the two policies combined do not cost more than the joint policy all is fine. If they do cost more then you have been mis-sold in my opinion, unless you said at the time of the change that you also wanted something on top if the mortgage clearing if you were both to die at the same time. If you did want more it might have been cheaper to do it with the mortgage plan than as an extra life insurance plan.

Mortgage_Mark_2

jamesd wrote: »

What that means is that you have been sold more insurance than you needed: twice the value of the mortgage. It is possible that it was cheaper to buy that way than to buy a joint policy. Or not. What were the prices?

If the two policies combined do not cost more than the joint policy all is fine. If they do cost more then you have been mis-sold in my opinion, unless you said at the time of the change that you also wanted something on top if the mortgage clearing if you were both to die at the same time. If you did want more it might have been cheaper to do it with the mortgage plan than as an extra life insurance plan.

There's not much chance two sole policies would be cheaper than one joint policy....

jamesd

I agree but I did have to cover that possibility since someone at the time claimed they would be better off with two.

ACG

What happens if the couple were to split up and between now and then one of them were to pick up a medical condition - diabetes for example. In the future they may not be insurable or if they are it could have loadings/exclusions/both.

Or one person were to pass away and the other be diagnosed with a critical illness - great the house is paid off but you would still have bills/may want money to pay for private treatment etc.

Ensuring the clients are fully protected from the outset is best practice to cover all eventualities. Typically though affordability comes into play and prevents it.

There are many reasons on why you would do separate policies, the only reason not to is cost. One person making a claim does not mean protection is not needed following that.

kingstreet

Quite often, the difference in premium between a joint plan and two singles is so small, when you tell the client they could potentially have two payouts for very little extra, they jump at it.

As long as it's properly documented, we've never had a problem with it.

jamesd

There might be a second need but diabetes is a particularly poor example to use. A FTB would be too old for type 1 diagnosis to be likely and too young for type 2 to be likely, though 2 is more likely than 1. Other types not particularly likely anyway. And for the two main types life expectancy is long.

Even if there's a desire for cover for something why does that need decrease in a way that matches the expected mortgage paying rate?

kingstreet

I'm in the Friends Life site and I've just done a dummy quote for life cover;-

2 singles £18.16

1 joint £16.66

£1.50 a month difference

then for death or earlier critical illness cover

2 singles £79.90

1 joint £75.42

£4.48 a month difference.