Insurance required by mortgage lender

squibby

Hello everyone,

We have been advised by our IFA that we need to have life insurance / critical illness cover to complete our application with RBS. Our mortgage has been accepted, but we really don't know what insurance we must have, and whats optional.
We think (from a bit if research) that we only need home buildings and contents for RBS to be happy, but we would really appreciate some advice!

Thanks in advance :T

eamon

This is nonsense. Life insurance/critical illness insurance etc are big commission earners for bank staff, non independent brokers etc and are often so riddled with get out clauses that they are next to useless. You don't need this to secure a mortgage! Are you sure that your IFA is independent, fee free and whole of market as per Martins advice?

If at a later date you feel a need for insurance(s) then make sure that you shop around and you should check out if you already have cover e.g. through your work or perhaps your credit card(s). Critical illness cover has been well covered by BBC Watchdog, numerous newspapers and probably in this site as well. The consensus is "don't do it" the exclusions and hurdles are too many.

Lastly you should really only consider life insurance this if there are dependents that rely on your income.

yours

Eamon

squibby

Thanks for the helpful advice

Just to clarify, RBS wouldn't insist that we had to have life insurance to get a mortgage through them?

Thanks again

dunstonh

Are you sure that your IFA is independent, fee free and whole of market as per Martins advice?

IFAs are investment advisers. The I in IFA stands for independent. However, IFA means nothing in the world of mortgage advice as that is a totally different classification.

It is quite possible, although unlikely that an IFA would only offer a limited panel. However, if the IFA firm employs mortgage advisers, they may well be on a panel for mortgages whilst the IFAs are whole of market on investments.

Research has shown that 2/3rds of people seeing tied agents believe their adviser to be whole of market or independent when they are not. So, it is something you should verify and not take their word for it. The initial disclosure documents (key facts about our services) has tick boxes which declare the type of adviser you are seeing.

Critical illness cover has been well covered by BBC Watchdog, numerous newspapers and probably in this site as well. The consensus is "don't do it" the exclusions and hurdles are too many.

Watchdog were criticised and the FOS had to publish a clarification after the last episode covering Critical illness cover as Watchdog had mispresented data. Most insurance companies publish their claims stats on CI and the rejected claims information does not match what you hear on watchdog. Watchdog seem to infer that all rejected claims are unfair when indeed, only a small minority get disputed and most of those rejected are because the policy doesnt cover the item being claimed. You dont claim on your house insurance when you have a car accident.

The consensus is certainly not don't do it. Indeed, speak from personal experience, I handle more claims on CI than I do life cover. When this subject has been covered before, the other advisers on the board agreed it was similar with them. That said, PHI should be prioritised above CI.

beingjdc

I told mine (back when I had a mortgage) that my work pension scheme already provided these benefits, and they stopped asking. This much was true. They didn't ask, luckily, whether I was a *member* of said pension scheme...

Dani85

I got my mortgage through RBS and life cover wasn't compulsory

Red_Cat

The risk for the mortgage lender is the property becoming worth less than the mortgage by damage, hence the need for buildings insurance.

The risk of paying the mortgage is yours. f you can't, the house will be repossessed and the mortgage lender will sell the property and get their money back their way. So if you are happy that you can pay the mortgage and are not concerned about ill health or are covered by a sickness or death in service clause in your pension scheme, then no one is going to stipulate that you take out life cover.

As for beingjdc, mentioned my pension scheme cover and all the q's stopped. It's worth considering this type of product in the casethat if the worst happened, that the mortgage could still be covered for your family's benefit.