Mortgage Protection insurance - paying before mortgage drawn down

[podgerodge]

I applied through a mortgage broker for mortgage protection insurance together with an application for a mortgage. The mortgage is approved but I won’t be drawing it down until the closing date of the purchase – possibly 2 months away.

But the mortgage protection payments are now being deducted (it’s my fault I never looked at the starting date when the documentation came in). When I rang the mortgage protection provider to see would they delay the deductions until the mortgage was drawn down they said they are now “on risk” so they can’t. I asked would that mean in the event of death they would pay out even though the mortgage was not in place and they said yes.

So my question is – are they on risk for a mortgage protection policy before the mortgage is drawn down or am I paying for nothing?

 

[ClubMan]

You're not paying for nothing - you're paying for life assurance to the tune of the mortgage amount as they have explained to you. Mind you I'm not sure if this is already assigned to the lender even though the mortgage hasn't been drawn down yet. I don't know what "on risk" means but as far as I recall when I arranged a mortgage years ago I arranged for the mortgage protection life assurance to take effect from just (a few days) before the mortgage was drawn down.

 

[podgerodge]

But would a payout be subject to the mortgage being drawn down? And therefore not "on risk"?

 

[billabong]

"On risk" is just insurance/assurance speak meaning that the policy is now "live" on their system. The policy is now in force.

But would a payout be subject to the mortgage being drawn down? And therefore not "on risk"?

No, I don't think so. What you're buying is a life assurance policy, which just happens to be a condition of the lending institution and for this reason it's termed "Mortgage Protection" (but this life policy could just as easily exist and be purchased freestanding on its own without any connection to a mortgage). The life policy being in place is a condition of the mortgage but not vice versa. Maybe give them a buzz and ask them that specific question just for your own peace of mind.

When I rang the mortgage protection provider to see would they delay the deductions until the mortgage was drawn down they said they are now “on risk” so they can’t.

I'd say this might be more "they don't want to" rather than "can't". Once a policy goes live on the system, it can be a lot of hassle backing it out.

 

[RS2K]

But would a payout be subject to the mortgage being drawn down? And therefore not "on risk"?

No.

 

[ClubMan]

Does the policy only get assigned to the lender when the mortgage is drawn down?

 

[RS2K]

It's usually done just before drawdown.