Critical Illness Insurance and Mortgage Protection- But no mortgage yet?

Iiyama

Long story short. Son buying first property. First flat fell through. Present property he is buying is taking forever due to the deeds not been written in the correct format.

He got accepted for his Mortgage in April 2024 and his advisor told him he should take out mortgage protection insurance and critical illness insurance. (both costing £75 per month)

However, because of the delay in exchanging contracts due to the issue regarding the deeds my son is still paying out £75 per month insurance when he hasn't yet started paying his mortgage.

Is this correct to be paying mortgage protection cover/ critical illness insurance when he is not yet paying his mortgage? To add to that his mortgage offer has now expired due the the delays.

All advice appreciated.

Mark_d

Mortgage protection insurance typically pays out a fixed amount each month, for up to say 12 months, where the policyholder suffers illness, accident or redundancy.  This payout allows the policyholder to continue paying the mortgage (and other bills) when otherwise he might be unable to.

Critical illness cover typically pays out a fixed sum of money if you are diagnosed with a critical illness.

Policies like these can be of benefit regardless of the policyholders housing situation.  However, in my opinion, critical illness cover is never necessary.  But it is your son's decision whether he wants to continue paying for these policies.  I don't believe these are required by any mortgage provider.  I suspect your son was sold these policies because the mortgage advisor makes a lot of commission on the sale of these policies.

Iiyama

Mark_d said:

Mortgage protection insurance typically pays out a fixed amount each month, for up to say 12 months, where the policyholder suffers illness, accident or redundancy.  This payout allows the policyholder to continue paying the mortgage (and other bills) when otherwise he might be unable to.

Critical illness cover typically pays out a fixed sum of money if you are diagnosed with a critical illness.

Policies like these can be of benefit regardless of the policyholders housing situation.  However, in my opinion, critical illness cover is never necessary.  But it is your son's decision whether he wants to continue paying for these policies.  I don't believe these are required by any mortgage provider.  I suspect your son was sold these policies because the mortgage advisor makes a lot of commission on the sale of these policies.

Yes, thanks. My son is now thinking that the critical illness cover is not required and that the advisor who sold him it is trying to persuade him to keep it at a cost of £75 a month. I don't yet know the full story 

Aretnap

What exactly is the "mortgage protection" insurance that he has bought? Mortgage protection" is not a well defined term and a number of completely different products could be sold as mortgage protection, including:

Life insurance - pays out if you die 

Critical illness insurance - pays a lump sum if you are diagnosed with one of a list of specified diseases of specified severity

Permanent Health Insurance - pays you a regular income if you are unable to work for health reasons, potentially until you reach retirement age

Accident Sickness and Unemployment insurance -like permanent health insurance but only pays out for a year or two, so not much help if you're long term sick; may also cover redundancy 

All of these are potentially useful whether you have a mortgage or not, and a mortgage is not required to hold any of them. For example if you lose your job due to illness you are going to have bills that need paying, mortgage or no mortgage, so some sort of income protection is desirable. 

I wouldn't say critical illness cover was never necessary, but I would definitely rank it below permanent health insurance in terms of priority. Life insurance is only really necessary if he has someone who is financially dependant on him, however if he already has critical illness cover then the cost of adding life insurance is often pennies or even zero, so might as well add it if there's any possibility of having dependants in future.

dunstonh

However, because of the delay in exchanging contracts due to the issue regarding the deeds my son is still paying out £75 per month insurance when he hasn't yet started paying his mortgage.

Normally, you would not expect the insurances to start until exchange at the earliest.    They would be underwritten and accepted but awaiting start date.

Did he see a sales rep or an independent?   (a lot of estate agent brokers are sales reps).

Iiyama

dunstonh said:

However, because of the delay in exchanging contracts due to the issue regarding the deeds my son is still paying out £75 per month insurance when he hasn't yet started paying his mortgage.

Normally, you would not expect the insurances to start until exchange at the earliest.    They would be underwritten and accepted but awaiting start date.

Did he see a sales rep or an independent?   (a lot of estate agent brokers are sales reps).

It’s an independent mortgage advisor. I’m concerned that since April he has been paying mortgage protection insurance when he hasn’t started paying his mortgage yet and is unlikely to for months to come.

dunstonh

Iiyama said:

dunstonh said:

However, because of the delay in exchanging contracts due to the issue regarding the deeds my son is still paying out £75 per month insurance when he hasn't yet started paying his mortgage.

Normally, you would not expect the insurances to start until exchange at the earliest.    They would be underwritten and accepted but awaiting start date.

Did he see a sales rep or an independent?   (a lot of estate agent brokers are sales reps).

It’s an independent mortgage advisor. I’m concerned that since April he has been paying mortgage protection insurance when he hasn’t started paying his mortgage yet and is unlikely to for months to come.

Its unusual for an independent to do that.  Often you see it with sales reps desperate to hit targets.

However, he has grounds for complaint.

benkhn

Hi
I am an independent mortgage advisor and in this case certain insurances such as insurance to cover the mortgage should generally start in line with the purchase completion. Critical illness and income protection can start any time as they are designed to cover the individual rather than the property but there is nothing stopping them starting before the completion or in line with completion it's generally based on customers needs. 

I am more than happy to review and discuss this matter if needed on an insurance or mortgage stance