In this week’s blog post I am going to address one of the most common problems I come across with New Beginning clients every day. Thousands of mortgage deals have been issued to clients in recent years and unfortunately the bank have mostly washed their hands of the problem changing your mortgage terms has on a client’s life insurance structure.
Most clients who have received a split mortgage, capitalisation of arrears, term extension or part capital and interest arrangement from their lender have left their life insurance unchanged. The banks have advised them to seek independent advice which is their way of saying “not our problem” but few have actually addressed this issue as they believe they have mortgage protection policy in place so feel there is no issue.
The problem simply lies with the fact that because your mortgage terms have changed, it is very likely that your life insurance should also be changed to match your new mortgage terms.
I will explain by way of an example. A client who has €300k of mortgage split into 2 parts, one part to be warehoused and dealt with in 15 years, the other part to be paid back as normal over the next 15 years. If this client has a normal mortgage protection policy in place to cover that mortgage debt, the life insurance benefit to be paid out on death is decreasing to zero over the same 15 years. It means that should the unfortunate actually happen the life insurance policy you thought would pay off your mortgage all of a sudden only pays off a portion of it. This means that you are not covering what you think you are covering!
Considering you are likely to be paying a premium every month to ensure that should you pass away that your mortgage will be cleared, it is quite likely that the further you are into your new mortgage terms the greater the unprotected debt remains.
The solution is a simple one and often no more expensive than you are currently paying. Simply replace your existing cover with two new polices which will match your new mortgage terms, the first addressing the warehoused part and the second covering the normal capital and interest part.
This life insurance structure change is something we are now specialising in and we feel this will become a bigger issue as time goes on. It is important to fix this now and ensure that the premium you are spending every month is doing what you think it is doing. The younger you do this the cheaper it is too.
Get in touch with me directly on firstname.lastname@example.org if you would to chat through your own situation. That or call us in Dublin on 01 5240000 and ask for Nick or Kathy.