Mortgage protection insurance

tracey1098

Looking for some advice.

We had a mortgage, sold and cleared our mortgage. We were paying mortgage protection & life/critical illness. 2 years ago I claimed from the critical illness & got paid out. Since clearing out mortgage we have been continuing to pay the mortgage protection. I have been told we should continue to do this incase we get another mortgage even though we may not buy for another year or two as I would not find it easy to get mortgage protection again??

Is this right? I'm just concerned we are paying this every month and it may be wrong.

Any advice appreciated.

coylemj

It's probably only worth continuing the existing mortgage protection policy if the amount that's covered would be equal to or less than the next mortgage you might take out, otherwise you will need to increase the cover or take out a new policy. In both cases you may run into the problem you allude to which is that your bout of ill health in the past may act against you in the form of higher premiums or a downright refusal of cover.

Who is telling you to continue the policy, is it a person with a vested interest?

When you took out the original policy, was it based on a declining balance? If it was, the amount it now covers may be insignificant, so much so that it's not worth continuing to pay the premiums. The structure of a mortgage protection policy is that the amount payable on death reduces over the term to reflect the fact that you are paying off some capital each year so the outstanding balance reduces over the term, to zero on the last day of the loan.

tracey1098

coylemj wrote: »

It's only nbworth continuing the mortgage protection if the amount covered would be equal to or less than the next mortgage you might take out, otherwise you will need to up the cover or take out a new policy. In both cases you may run into the problem you allude to which is that your bout of ill health in the past may act against you in the form of higher premiums or a downright refusal of cover.

Who is telling you to continue the policy, is it a person with a vested interest?

Thanks for replying coylemj.

Yes the person is the financial advisor who sold us the policy. He said we could just up the mortgage amount on the current policy, no need for new policy.

coylemj

tracey1098 wrote: »

Thanks for replying coylemj.

Yes the person is the financial advisor who sold us the policy. He said we could just up the mortgage amount on the current policy, no need for new policy.

In that case I'd keep paying it. Though I'd be a bit sceptical at the (implied) claim that there would be no obligation to to inform the insurance company about your recent illness when increasing the level of cover.

phormium

Without knowing all the details it seems to make sense to continue on this policy as if you have made a claim on the serious illness part then you may well find difficulty getting a new policy. However I think you will run into the same difficulty trying to increase the existing policy, any change like that usually requires new underwriting just like a new policy.

But at least if you have this policy in force and it covers a decent amount of potential payout then even if you cannot get new or increase cover for the new mortgage amount the bank may allow you do a waiver based on the fact that you can't get the required cover.

Then at least you will have the existing policy in place, however if you cancel this and cannot get any further cover then even though you may still be able to go ahead with a mortgage without cover it is riskier obviously for your dependants should anything happen.

Check that the amount covered is worth having at this stage.

Trish56

tracey1098 wrote: »

Thanks for replying coylemj.

Yes the person is the financial advisor who sold us the policy. He said we could just up the mortgage amount on the current policy, no need for new policy.

I think I would take your Financial Advisor's advice and keep paying the policy. He she will be able to inform you what the current cover is. If you cancelled the policy and require a new policy down the road you will more than likely be declined or have your premium loaded. At least if you have some cover a lender may approve a mortgage with your partner taking out the additional cover.

tracey1098

Thanks for the advice guys, will def keep paying it so!

EGavigan

Your existing policy may have a conversion option. This could (depending on the precise terms) mean that you could increase your cover in the future without having to go through the underwriting process again. Given that you had a serious illness you may be loaded if you seek a new policy so you need to tread carefully.

EGavigan

Also, even if you can't increase your cover, maybe what remains will be sufficient to cover a future mortgage.

Lastly, many people consider it a good idea to have life cover even if you don't have a mortgage, in order that your spouse/dependents would have a financial cushion in the event if your death.

At any rate if you have discharged the mortgage you should get the bank to release or reassign the policy to you as they don't do this automatically when a mortgage is repaid.

Browney7

Check your policy conditions. A life events option could apply to the policy so you could increase the cover on taking out a new mortgage or having another child etc