Were we mis-sold life insurance?

soriansen

Hello, everyone. 
I would like to ask for your help in this matter, please. Me and my wife bought our first house last year. Started with a mortgage broker ,who found us a lender that will charge us 2.5% interest first two years, then to be variable. Everything looked good, then the mortgage advisor who worked for this brokerage company told stated us we need life insurance to protect the mortgage. To go ahead with the papers, we signed, electronically,  a fee waiver form which says we have to pay 3% from the amount borrowed,(£143k) in case we cancel the insurance inside the 2 year. They provided the insurance policy, with Aviva. The fee wasn't written down, just the 3%. That was in March, last year. Unfortunately,  we didn't feel good in the house,  and we  sold it after six months,  moving back in the area where we lived before. The move was completed just before Christmas. We went with the same solicitor, but we used the mortgage lender directly, didn't use the broker. We cancelled the insurance in March this year, just cancelled the direct debit and took insurance for the new property with a different insurer. I have to mention that we contacted the mortgage advisor to help us with the move. He said no problem, but he doesn't work for the mortgage broker anymore, he's independent. 
Now we received an email from the mortgage broker, who is threatened us to pay the 3% , or they will send the debt collection. 
What should we do? 
Thank you for your help. 

davidmcn

Why did you cancel the insurance?

soriansen

davidmcn said:

Why did you cancel the insurance?

The life insurance was for the first property. Just found out that taking a life insurance policy  wasn't  a condition from the lender. Only the building insurance, which we took ourselves, without any broker. 

Sandtree

soriansen said:
The life insurance was for the first property. Just found out that taking a life insurance policy  wasn't  a condition from the lender. Only the building insurance, which we took ourselves, without any broker. 

You said you cancelled this insurance (by non-payment) and then took out new insurance at the new property? So do you have life cover or not now?

PS. Cancelling by non-payment is a really bad idea (would you be happy if your employer simply stopped paying you instead of telling you that you were sacked/made redundant?) and can impact your ability to get insurance in the future.

dunstonh

 a fee waiver form which says we have to pay 3% from the amount borrowed,(£143k) in case we cancel the insurance inside the 2 year.

It is a common model that you get "free" mortgage advice if you purchase an insurance product.   

The fee wasn't written down, just the 3%. 

If it say 3% then it was written down.

Now we received an email from the mortgage broker, who is threatened us to pay the 3% , or they will send the debt collection. 

Which is entirely to be expected.

What should we do? 

Either pay the fee which you agreed when you took the mortgage out first time around or contact the original broker firm and tell them that you moved and the old policy was no longer suitable.  Most firms will arrange a new policy for you in its place to cover your need.

 Just found out that taking a life insurance policy  wasn't  a condition from the lender. Only the building insurance, which we took ourselves, without any broker. 

That is irrelevant.  It was a condition of the mortgage broker that you got free mortgage advice if you purchased an insurance and did not cancel it within 2 years.  If you did, then it reverted to free basis of 3% of amount borrowed.

Were we mis-sold life insurance?

Nothing you have said suggests any missale.  The model is allowed.   Indeed, it exists in many walks of life.  Mobile phones for example (where you get the phone "free" but you pay a contract for xx months).

For the fee to be enforceable, they must state how it is calculated.   You say it is 3% of amount borrowed.  So, that gives the calculation method.

3% is damned expensive but if that is what you agreed then its bit late now (most brokers do not run this model and their fees are around £195-£250.  It tends to be the chains rather than independents that do this percentage model.  It should be avoided as there is no reason for percentage with mortgages).

soriansen

Thank you kindly for your answer, Dunstonh. I think we didn't look properly and trusted the mortgage advisor. Is it possible to come to an agreement with the mortgage broker and maybe reinstate the policy? Thank you for your reply. 

EmmyLou30

The life insurance won't be linked to the house or mortgage, it's for a sum of cash on death. So there may have been no reason to cancel the original policy if it still met your needs. You don't need new policies for each house you move to, life insurance is a separate entity like your car insurance is. And stopping a DD is never a way to cancel any kind of contract, you must contact the company and cancel properly or you could get in a lot of trouble with cancelled car insurance or something in the future with huge knock on effects. 

In this instance you agreed to pay the 3% fee if you cancelled (yes it's a high penalty but you did agree to it). You cancelled by way of non payment. I think you just need to pay it, learn the lessons and move on. You don't want debt collectors after you and CCJs trashing your credit rating. 

Weighty1

soriansen said:

Thank you kindly for your answer, Dunstonh. I think we didn't look properly and trusted the mortgage advisor. Is it possible to come to an agreement with the mortgage broker and maybe reinstate the policy? Thank you for your reply. 

The mortgage broker isn't in charge of whether you can reinstate the plan, the insurance company is (Aviva).  They MAY be able to reinstate it, however, it depends exactly when you cancelled the direct debit.  You are probably right on the cusp of when a plan can no longer be reinstated.  If it is reinstated you will need to also pay the premiums missed since March and more than likely sign a declaration of health to confirm there's been no changes to your health since the plan was originally applied for.

If you cannot reinstate the plan you could ask the original broker/company if they would allow you to take a new life insurance policy through them and waive the 3% fee they are going to apply.

All in all, it was a pretty big mistake to simply cancel the plan when you'd agreed to the fee if it was cancelled. 

Weighty1

Sandtree said:

soriansen said:
The life insurance was for the first property. Just found out that taking a life insurance policy  wasn't  a condition from the lender. Only the building insurance, which we took ourselves, without any broker. 

You said you cancelled this insurance (by non-payment) and then took out new insurance at the new property? So do you have life cover or not now?

PS. Cancelling by non-payment is a really bad idea (would you be happy if your employer simply stopped paying you instead of telling you that you were sacked/made redundant?) and can impact your ability to get insurance in the future.

Cancelling a d/d for a life insurance plan wouldn't affect anyone's ability to get insurance in the future as there's no form of credit agreement in place.  All that would happen is the cover ceases.

soriansen

All this was advised by the mortgage advisor. He told us we need life insurance to go further with the mortgage application. We weren't showed a few offers to choose from.
Being first time buyers and told that we would not have to pay a mortgage fee felt helpful, as costs with solicitor, surveyor, etc were starting to pile up. 
We didn't call the mortgage broker nor the insurance company, because we trusted him to sorted out, guess it was a big mistake. 
Also, the mortgage broker just send an email to pay the 3% or they'll send the debt collection. Didn't ask what happened or why we cancelled the payments. 
I never had a missing payment in my hole life, I never tried to cheat, or dodge insurance companies or credit companies.

dunstonh

All this was advised by the mortgage advisor. He told us we need life insurance to go further with the mortgage application.

And that is correct. That firm required the purchase of insurance to get free mortgage advice.

We weren't showed a few offers to choose from.

It is not your job to choose.  It is the job of the adviser to present the best option.

Being first time buyers and told that we would not have to pay a mortgage fee felt helpful, as costs with solicitor, surveyor, etc were starting to pile up. 

Learn about marketing. Every business does marketing.   Often what appears to be free or cashback or money back etc tends to be recovered elsewhere.  

We didn't call the mortgage broker nor the insurance company, because we trusted him to sorted out, guess it was a big mistake. 

He hasn't actually done anything wrong.     However, they are expensive.  High price/cost is not a wrongdoing.  It is just not value for money.   The same occurs in all retail markets and service companies.

Also, the mortgage broker just send an email to pay the 3% or they'll send the debt collection. Didn't ask what happened or why we cancelled the payments. 

And you didnt tell them why you cancelled.   Communication works both ways.

I never had a missing payment in my hole life, I never tried to cheat, or dodge insurance companies or credit companies.

Irrelevant.

As has been said, go back to that first company now and tell them that your circumstances changed and the policy was no longer suitable.  However, if they are willing to drop the 3%, you will use them for the replacement policy.  Then in 2 years, you can shop around again and put it behind you.