Mortgage Life Assurance Question

BenEadir

Hi,

My mortgage documentation from 2007 is made up of an offer letter and an attached document entitled "Housing Loan Agreement" within which a clause entitled "Insurance" states "You are required by law to take out a life assurance policy in relation to your Mortgage on your death. Please contact your Mortgage Adviser for further details. You are required to provide a copy of the life assurance policy schedule to our Mortgage Deeds Department within 30 days of the completion date."

I have always had a life assurance policy and will continue to do so but I didn't realise it was a requirement in law. I thought it would have been a contractual condition between the mortgage provider and the mortgagee(s)? Can anyone on here confirm the statute/law which requires mortgagee's to have life assurance?

Also, given most mortgages are joint husband/wife or partners is the requirement for both mortgagees to have life assurance or just one?

phormium

It is a requirement under the Consumer Credit Act 1995 and yes most bank policy dictates that joint borrowers must have cover. Some exceptions apply and banks can allow customers waive the need for cover if they fit the exceptions box but that is dependant on the individual bank's lending policy.

http://www.irishstatutebook.ie/1995/en/act/pub/0024/sec0126.html

BenEadir

phormium wrote: »

It is a requirement under the Consumer Credit Act 1995 and yes most bank policy dictates that joint borrowers must have cover. Some exceptions apply and banks can allow customers waive the need for cover if they fit the exceptions box but that is dependant on the individual bank's lending policy.

http://www.irishstatutebook.ie/1995/en/act/pub/0024/sec0126.html

Hi Phormium, that's super info thanks.

It's interesting that the requirement for life assurance is not applicable where "loans to persons who belong to a class of persons which would not be acceptable to an insurer, or which would only be acceptable to an insurer at a premium significantly higher than that payable by borrowers generally"

How does that apply to for example a 28 year old who takes out a mortgage and because he's fit and healthy at that time pays a below average premium for his life assurance but within a few years has developed diabetes and hypertension and become obese to the extent that life assurance company's either don't want to provide cover or will only do so at a premium which is "significantly higher than that payable by borrowers generally"?

How is the premium "payable by borrowers generally" calculated and by who? Is there a database of premiums which enables an average premium per €100,000 borrowed to be calculated? How far over that average would a premium have to be (one standard deviation?) before it is deemed to be higher than the average and if that occurred would the mortgagee in the circumstances outlined above be excused from having to have life assurance cover?

phormium

Right, well in your example it would be irrelevant as he already had the mortgage and the insurance and then went on to become diabetic and obese but he would already have the policy from when he was fit and healthy, you don't have to notify the company if your health changes.

But for a person with some sort of medical issue who wishes to take out a new mortgage and finds it difficult to get insurance or at substantially higher than normal every bank will have access to a quoting system for life cover so will know what the norm is and common sense (I know that might be a foreign concept in banking!) would dictate how much is too much to expect someone to pay. More often the issue is that they are refused cover totally, then the bank has the option under the Act to allow the customer sign a waiver form which usually contains those four exceptions and you tick the relevant box. Banks differ in their policy on this, not all allow it in every case, for example if the only earner with a stay at home partner and dependant children was the one with the difficulty getting cover it may be harder to get the bank to agree to a waiver than it would be in other circumstances.

Have a read of this recent thread from AAM, illustrates what happens in cases like this

http://askaboutmoney.com/threads/refused-mortgage-protection.192522/

BenEadir

phormium wrote: »

Right, well in your example it would be irrelevant as he already had the mortgage and the insurance and then went on to become diabetic and obese but he would already have the policy from when he was fit and healthy, you don't have to notify the company if your health changes

Goes to show you how much I know eh? I thought premiums would shoot up if someone's health deteriorated rapidly. I guess the risk is assessed at the commencement of the policy and the premiums stay flat for the duration of the mortgage?

phormium

Mainly, a basic fixed term fixed amount assurance usually has a fixed premium too for the full term. There are other types that are reviewed but the review deals with the age rather than health and the premium can increase as you get older, these are usually whole of life policies.

For this reason there is a lot to be said for taking out some level of life cover when you are young and healthy, it gets more expensive as you get older and greater risk of health issues.

micar

yep, you need life cover to take out a mortgage.

It can be single, joint or dual life.

Single for one person mortgage.

Joint where two people are taking out a mortgage where cover would be paid out in the event of the first of the lives assured to die. There is only one potential pay out.

dual where two people are taking out a mortgage where cover would be paid out in the event the lives assured dying. In the event of a life assured dying, death benefit is paid out, the policy continue on the other life and would be paid out in the event of them dying. There are two potential payouts.

Dual life policies are more expensive than joint.

At a minimum, the bank would want you to have life cover. You can add Critical Illness if you want but this is almost double the cost of life cover.

most policies taken out with a mortgage are decreasing term assurance. The benefits decrease annually at the anniversary date kind of in line with the outstanding mortgage amount. However, the premium remains the same.

What most people dont realise is that premiums at the start are cheap for the benefit you are getting. Then at the end, the premium is high for the benefit you are getting.

Suppose, you have €200k life cover with premium of €50 per month for 25 years. Towards the end of the life of the policy, the Life cover could be at one point be €40k but the premium is still €50 per month.

What you can do is extend the term of the life assurance policy by 1 year say that at year 17 and the life cover is €40k, then extending by a year, the quote is based in remaining term and life cover of €40k decreasing annually. You're premium (generally) is going to much cheaper eventhough it based on your current age. Plus, the quote would based on current rates which are much better then when the policy was taken out.

BenEadir

micar wrote: »

What you can do is extend the term of the life assurance policy by 1 year say that at year 17 and the life cover is €40k, then extending by a year, the quote is based in remaining term and life cover of €40k decreasing annually. You're premium (generally) is going to much cheaper eventhough it based on your current age. Plus, the quote would based on current rates which are much better then when the policy was taken out.

That's good to know, thanks.