Mortgage life assurance premium doubles - time to check my options.

J

JohnSp

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Hi all,

My wife and I are joint mortgagee's on our house, we're aged 48 and 47 respectively, don't smoke and we both work. I have modest hypertension (being managed for over 20 years) but other than that we're fit (exercise regularly etc) and in good health.

We have an interest only tracker mortgage (one of the Celtic Tiger idiots here) whereby the principal remains constant until the end of the mortgage in 2042 (35 year mortgage taken out in 2007 [broken link removed] ) at which point (assuming we're still alive in our mid 70's) we sell the property, pay off the principal and pocket the equity. The only upside to this story is that we are not in negative equity now and with any degree of appreciation/inflation over the next 26 years should produce a decent amount of equity on exit. A good dose of inflation over a prolonged period would be our friend!!

We have kids etc so don't have much ability to pay down the principal at this point or to build up a savings fund but that will change in 5-10 years time as the kids make their own way in the world.

We both intend to work as late into life as possible, not because we'll be obliged to but out of choice. We both enjoy what we do and age is not an impediment to earning in our chosen fields, in fact it can be an advantage to be "silver haired". Both of us have family members who spent their lives working and saving and promptly died within 12-18 months of retirement at +/- 60 so we want to continue working albeit on a reduced basis right into our 70's.

So today I got a notice that basically says if I want to maintain the current level of cover the premium will effectively double and this seems like a good time to check the market for alternative quotes and to see what my options are.

The first question I have is where is the best place to go looking for a quote? Some of the online aggregation type sites where you answer some questions and they spew out a few indicative quotes from whatever providers they have agencies for or should I go to a broker and if so (providing its not against the forum rules) can anyone recommend a good broker anywhere on the south side of Dublin who specialises in Life Assurance/Mortgage Protection? (Are they one and the same thing?)

The next question I have is two fold. 1) do I really need to maintain a life assurance/mortgage protection policy on both our lives to comply with the mortgage? I see from the Consumer Finance website (can't post links as a newbie) that if the "principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home" you can apply to remove the requirement for private mortgage insurance. Given the original Loan to Value principal on the mortgage was 80% does that mean I could drop mortgage insurance all together? 2) if I can't dropmit all together could the life assurance be limited to just one of us?

What would ultimately happen, in real rather than theoretical terms, if I didn't renew the Life Assurance policy? The mortgage documentation says my home is at risk if I don't keep up repayments but it doesn't say my home is at risk if I don't maintain the life assurance policy but I'm sure if I'm in breach of any of the terms of the mortgage it would open the door to the building society revoking the mortgage and demanding full repayment which would be a disaster. Are there any examples of people who continue to make monthly payments being kicked out of their house for not having a life assurance policy in place?

Lastly, what is "Indexation"? The reviewed proposed premiums are on the basis that I "accept indexation of 5.00% at 1 December 2016".

The likelihood is I'll just suck it up and pay the increased premiums but before I do I'd appreciate any helpful thoughts/suggestions.

I know I'm a tool for over extending myself in 2007 and with hindsight and all that I'd make a different decision but I am where I am so please try not to scold me too much. I'm on here looking for a little help/steer if possible.

Over to you.
 
Why would you risk not having life assurance on your mortgage? If one of you died, it would be of some comfort to know that the house is paid for.

The cheapest cover you can take out is mortgage protection which reduces over the term of the policy, so when your mortgage is worth zero, so is your life cover.

Indexation is the policy increases by a fixed amount each year. So does the premium.


Steven
www.bluewaterfp.ie
 
JohnSp said:
... So today I got a notice that basically says if I want to maintain the current level of cover the premium will effectively double
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Any indication as to why exactly? Is it definitely the one health issue you highlighted or is there some other unconnected reason?
 
SBarrett said:
Why would you risk not having life assurance on your mortgage? If one of you died, it would be of some comfort to know that the house is paid for.
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Thanks Steven. My preference isn't to drop life assurance and I do value it for the reasons you state but if push came to shove I'd be ok downsizing should my wife die as it won't be long until the kids are gone so if I had to move into a one bed apartment in Dublin, down the country (where I'm originally from) or move overseas all together (have experience living in Asia previously) where my skillset would enable me to continue earning a decent salary I'd be quite happy to do so. The house is primarily to facilitate raising the kids and thats closer to the finish than the start line. I'm not emotionally attached to the house or area etc.

Similarly, if I kicked the bucket I'd prefer to leave the value of the house to my wife but again if push came to shove she'd downsize and/or move as her skills are quite transferable and she too is used to relocating and starting up somewhere fresh.

If I can maintain cover I will, not having cover would be my least favourite option.
 
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mathepac said:
Any indication as to why exactly? Is it definitely the one health issue you highlighted or is there some other unconnected reason?
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The only things I can think of are 1) the premiums haven't been reviewed since we took out the policy in 2007 and 2) our age profile has changed (obviously) and we are now in a higher risk category? If anything we are through choice and circumstance living much healthier lives now than we were when we took the policy out in 2007. We both go to the gym 3-4 times a week, we avoid processed food and eat fairly well i.e. home cooked meals, no deep fried anything and have one or max two take aways or a casual family meal out once a week. the days of hitting the town on a Friday and Saturday night to drink a load of beer/wine, lash down a curry and fall home at 3am are (thankfully) well gone.

Two things I'd appreciate some help with:-

1. My 2007 mortgage documentation (offer letter) states that

"you are required by law to take out a life assurance policy in relation to the payment of 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".

Is it in fact correct that there is a law requiring mortgage holders to have a life assurance policy?

2. Is Life Insurance and Mortgage Protection the same thing as the "Life Assurance" my mortgage documentation states I am obliged to have? I understood Life Insurance and Life Assurance were very different things? If I get a Mortgage Protection policy (some of the online quotes from places like LABrokers appear to be very competitive relative to my current provider) will that satisfy the mortgage/statutory requirement to have such cover?

I'm fairly confused here.
 
Mortgage protection policy = simply repays debt if one or both of ye die

Life insurance = unconnected to the mortgage, pays out if you die

Married people with mortgages and kids should have both policies.


Life insurance/assurance are not very different things..............why do you think they are? What do you think they are?
 
JohnSp said:
2. Is Life Insurance and Mortgage Protection the same thing as the "Life Assurance" my mortgage documentation states I am obliged to have? I understood Life Insurance and Life Assurance were very different things? If I get a Mortgage Protection policy (some of the online quotes from places like LABrokers appear to be very competitive relative to my current provider) will that satisfy the mortgage/statutory requirement to have such cover?
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YES.
 
Protocol said:
Life insurance/assurance are not very different things..............why do you think they are? What do you think they are?
Click to expand...

When I was in school 30 years ago I was taught that Insurance is protection against something which "may or may not" happen like car accidents etc whereas Assurance was a way to build up a fund to provide for something that will definitely happen. You cannot insure against the sun coming up tomorrow as it's definitely (well as far as can be defined) going to happen but you can put savings aside to provide for the assurance that the sun will come up tomorrow.

I guess the only way a life could be "insured" is if the policy is time limited i.e. if you die before a certain date then the policy pays out. If you die after that date it's tough luck Paddy, you're on your own.
 
In theory yes but very hard to get a decent assurance policy that will remain affordable until such time as it pays out. Most people go for straight forward insurance of some sort these days.
 
Okay, I see what you mean.

In the past in Ireland, life cover was often sold combined with a savings policy. That tended to be known as life assurance.

These days, pure term life insurance seems to be more popular, i.e. it pays out if you die within the term.

So what you describe in your last paragraph is what you are advised to buy these days, as well as the MPP.
 
Protocol said:
Mortgage protection policy = simply repays debt if one or both of ye die

Life insurance = unconnected to the mortgage, pays out if you die
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Mortgage protection is just a name for life cover that decreases in value over the term of the policy. Typically, it assumes a 6% interest rate over the term of the policy and the level of cover reduces using that assumption. Rates are currently lower than 6%, so if there was a payout, the mortgage is paid off and a surplus paid to the estate. If interest rates are over 6% for a prolonged period, the payout may not cover the outstanding debt.

Both mortgage protection and life cover policies do the same function, pay out a lump sum on debt. Both can be used to cover a debt provided the sum insured and the term of the policy are what is required. The lender will then ask you to complete a deed of assignment, basically giving them first dibs on the payout. They take what they need to pay off the debt and give what's left over to your estate.


Anyway, back to the OP, John you took out a policy that is reviewed every number of years. It starts off pretty cheap as your chances of dying as low. As you get older, the chances of dying increases and so do the premium. This type of cover gets very expensive. You are better off getting guaranteed premium cover where the price is fixed for the term. You can also chose to have index linked cover where the cover will increase by a fixed amount over time. So will the premium but it is by a fixed amount too so you can calculate how much it will cost you each year.


Steven
www.bluewaterfp.ie
 
Protocol said:
Okay, I see what you mean.

In the past in Ireland, life cover was often sold combined with a savings policy. That tended to be known as life assurance.

These days, pure term life insurance seems to be more popular, i.e. it pays out if you die within the term.

So what you describe in your last paragraph is what you are advised to buy these days, as well as the MPP.
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What do you mean nowadays. I have term insurance, as required by my mortgage, by term I mean the amount covered decreased as the amount owing decreased. But the premiums never increased. Level term insurance, same amount of capital covered for the 35 years, which seems to be what the OP has, do the premiums increase?

Term insurence is the cheapest type for home mortgages.
 
JohnSp said:
I know I'm a tool for over extending myself in 2007 and with hindsight and all that I'd make a different decision but I am where I am so please try not to scold me too much. I'm on here looking for a little help/steer if possible.

Over to you.
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I'm not scolding you but I think it's shocking a bank would give you a mortgage that extends into your seventies and I sincerely hope nobody on here would get such a mortgage now.

I do not think you should cancel it altogether, (and yes I read your reasonings later on) and I'm nearly positive it's a legal requirement. Whereas the home insurance (fire) is a bank requirement. And there are very good reasons for having such insurances. I've heard too many hard stories on this not to think it is an excellent legal requirement.

Life changes and you might be very glad you have it, or your wife might, or your children.

You seem very assured you will work into your seventies. Life is not like that in my experience. Based on the fact you have to pay this mortgage well into your seventies the thread you should have started was how do I pay off my mortgage early in case I can no longer afford the repayments. There must be some way for you to pay something, anything, off the capital. But to get advice on that please do the money makeover thread.

Also, what is your current premium for life insurance? On what borrowings. And what would the new premiums be, who is it with. (some of the experts/brokers will/might then be able to advise you if this is the correct product - at the right price)
 
Is it simply a case that the policy has been reviewed now and the premium is increasing? If so and you pay the increased amount when is the next review? It might be a waste of money paying the higher amount only to be priced out of it again in a few years time at next review. Better to try and get an affordable level term policy now at this age than be looking for it when older.
 
Thanks all. I've made contact with a well established broker who responded promptly and is very transparent ref fees etc, I like that. I now have an indicative quote on a level term principal with a fixed premium for the duration of the mortgage which offers like for like cover (including similar critical illness cover to what is in my current policy) for less than my old premiums and by extension 50% less than the proposed new premiums from my current provider.

I know paying off the principal is potentially a good option but given I have such a low tracker rate my view is I'm better off building up a separate pot of cash (savings/investments) rather than paying down the principal as the principal costs 1% per annum whereas any money I put into investments should generate a higher return effectively allowing me to borrow at 1% and generate an ROI at a multiple of that plus there will likely be equity in the house by 2042 and/or one of myself or my wife will be dead (just being realistic) so the life assurance will have paid off the principal and the full value of the house (plus any cash/investments I've built up by then) can be used to fund a downsizing and provision of a fund to top up pension income/part time income etc if I'm still working.

Lot's of "if's and but's" but that's life.

A 45 year old friend of mine recently died from a brain tumour. That rebalances the value of living in the now Vs providing for a long life which may never happen or may be self financing if you can/want to keep working.
 
That's a great result on the life insurance. Others reading might now think of looking if they have the type of policy JohnSp had and if they can do something similar. Don't want to be facing a doubling of your insurance premiums when you least want it.

It is my opinion that it is in general better for most pepole to pay back some capital even if their interest rate is low. Not everybody is able to put that monthly amount they are saving away as it's too tempting for them to spend it on something else. If you are one of those, don't do it.
 
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