Life Insurance : Decreasing vs Level

joeyjo_2

Hi Guys,

I've just gone through my paperwork and discovered that we have been paying for Life Insurance with decreasing mortgage cover, which was sold to us my the people who arranged our interest only mortgage.
As we are on an interest only mortgage, does this mean that we are not covered?
I have tried to ring the Insurance providers, but they are making no sense.
Have we been mis sold this policy by our advisor?

Can anybody offer their advice on this subject?

Joeyjo

dunstonh

As we are on an interest only mortgage, does this mean that we are not covered?

It would still pay out but the sum assured is declining and that would leave a shortfall.

I have tried to ring the Insurance providers, but they are making no sense.

The insurance company can only give factual information. They cannot give an opinion or advice as it would breach FSA rules. Often people think the insurer is being difficult or unhelpful but it is reality of compensation culture and fear of complaints as well as fear of the regulator slapping a big fine on them.

Have we been mis sold this policy by our advisor?

If the mortgage was on interest only at the start and there is no repayment vehicle (such as a mini stocks and shares ISA) than it is likely. However, it depends on what you are using as the repayment vehicle.

If it is a mis-sale it is not one that you are financially worse off from at the moment as your monthly premiums are lower. So, little point in complaining.

If you have no repayment vehicle then you should look for a level term assurance. If you have a repayment vehicle then its fine.

joeyjo_2

Dear Dunstonh,

Thank you for your advice.

Yes, we took the interest only mortgage from the start when we first bought the house nearly two years ago.
At that time, we were told that we must take the insurance offered (by the same people) in order for us to be able to take on the interest only mortgage as we did not have any other repayment plan in place.
The advisors that we went to organised both the mortgage and the insurance policy on our behalf (which had to be taken out with the insurance provider that they had 'recommended')

At the moment, we do not have any repayment vehicle in place. Our intention was to purchase the house initially using a two year fixed mortgage on the terms of interest only, with the view that we will switch to a repayment mortgage once our funds allowed us to (wage increases etc)
We are looking to change to repayment within the next six months.

Unfortunately, with this being our first home, neither of us were expert in the matters of mortgages and associated financial issues and completely trusted the advisor we used and therefore went with their insurance option as instructed.
The monthly premuims that we are paying are quite high, and it was only through discussing what we are paying for our cover with friends that I started to look into it and realised that we were paying quite a high amount for a policy that we may not necessarily be covered by.

I presume that I am free to cancel my policy and look for an alternative level term assurance? This is the information I was trying to obtain from the insurer, but could not get a reasonable reply

Kind regards,

Joeyjo

dunstonh

I presume that I am free to cancel my policy and look for an alternative level term assurance?

Yes. You may find the original adviser comes to you and complains/whinges that he has suffred a commission clawback and wants you to pay the difference. Some of the less reputable companies do this.

If that is the case, I suggest you ask them for the fee agreement signed by you agreeing to transact on fee basis and also suggest that if they want to pursue it that you will make a complaint that you were mis-sold the life assurance as decreasing term assurance is not suitable for an interest only mortgage with no repayment vehicle. A complaint to the FOS costs the adviser £400 even if it isnt upheld.

joeyjo_2

Thats great thanks,

I'll continue my hunt for a new and more suitable policy!