# Mortgage Protection - refund?



## Zed (21 Feb 2007)

Hello,

For my previous mortgage I took out a mortgage protection policy which was paid monthly by direct debit ( €13.77 ) . Two years ago I moved house and never got around to canceling the policy. I have now canceled the policy and the direct debit. I requested a refund of 24 monthly payments as in my view I was paying a premium for which the insurance company had no exposure i.e the mortgage was paid off.  The insurance company say as I did not inform them they continued to operate the policy and would have paid up in the event of a claim. I find this hard to understand as there would not have been a mortgage to pay off and undoubtedly they would have checked this fact in the event of a claim. Are they right?


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## ClubMan (21 Feb 2007)

I don't think that you are entitled to a refund since you were getting life assurance cover for the period in question even if there was no mortgage to cover - i.e. if you had died then they would have paid out a lump sum to your estate and not the lender. It's up to the insured party to cancel such policies when they are considered to be no longer needed.


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## gd2000 (21 Feb 2007)

It's a tough one - I don't think you have laid the facts out clearly enough.  If you had no mortgage at all, then the insurer had no exposure to mortality risk, and I would expect that most companies would make a payment out of goodwill (although they may or may not be obliged to!).

If you transferred a mortgage, then they could quite validly argue that they were covering the mortgage on the new property.

Either way - a quick phone call to the Financial Regulator should clarify the situation for you...


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## ClubMan (21 Feb 2007)

But surely a mortgage protection life assurance policy becomes a normal life assurance policy if the mortgage is no longer relevant and you leave the policy in place? In which case you paid for cover that they provided over the 24 months and the fact that you did not die/claim does not in itself entitle you to a refund? I know that when I cleared the mortgage with _EBS_ I cancelled the _MPLA _but I could have left it in place as general life assurance for the original mortgage amount (it was a level/convertible term policy).


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## gd2000 (21 Feb 2007)

As I mentioned, I don't think all the facts are presented.

However, if the mortgage is paid off, then there is no life cover (on a standard decreasing term assurance).  Although, of course, my statement depends on the terms and conditions of the policy!

A similar thing happens with some investment products that also have a life benefit - as the savings increase, the life benefit decreases (from the insurance company's perspective, as they are not exposed to mortality risk - the benefit comes from the policyholder's savings).

The Financial Regulator would be the best person to opine on this - but I can see a plausible situation where, because a mortgage is paid off, then there is no cover.  A company should not accept a premium for not providing a benefit.  However, that does not mean a 100% refund is due - there are administrative costs that the company bore, and they should not be liable for them when a policyholder neglects to cancel a policy.

I suppose I'm thiniking along the lines of:

On a decreasing term assurance (AKA mortgage life protection), the sum insured decreases over time.  If you have put in a large lump sum (say 50%) into the mortgage and subsequently died, the insurance company would only pay off the remaining amount - not the amount they predicted you would have remaining.  They therefore shouldn't have accepted a premium for the 50% lump sum.


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## ClubMan (21 Feb 2007)

gd2000 said:


> However, if the mortgage is paid off, then there is no life cover (on a standard decreasing term assurance).  Although, of course, my statement depends on the terms and conditions of the policy!


But surely most decreasing term _MPLA _policies decrease the capital sum covered at a particular rate so accelerated repayment/clearance of the mortgage capital before the term is up may simply mean that the _MPLA _cover amount exceeds the mortgage capital amount? See here for example:

Mortgage Protection - The assumed mortgage interest rate is 6% per annum.


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## gd2000 (21 Feb 2007)

That's my understanding too.  But the company will not pay the surplus out on death - they're just ensuring that you're covered.

While some prudence is acceptable (and encouraged by the regulator), if you paid off 50% of the loan as a lump-sum, then they're charging too high a premium for the cover they're providing.  That would not be deemed to be prudent, more likely it would be called profiteering (if that information was available to them).  Indeed - you can call your MPLA provider and tell them if you've made significant captial reductions, and they should re-evaluate your premium.

Again - can't stress strongly enought that I'm only saying this is a plausible scenario - not a definitive answer to the OP!


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## ClubMan (21 Feb 2007)

I can't imagine that there is any statutory protection here if that's what you're suggesting? If I take a mortgage for €500K but, for some stupid reason, take out €1M worth of _MPLA _then I can't see that the lender or _MPLA _underwriter are in any way responsible for telling me that this is not the most prudent thing in the world or that it's anything for _IFSRA _or maybe the _FSO_ to stick their nose into. I would assume that it's my own personal responsibility to make sure that I am spending my money wisely. Similarly if I take out the actual €500K cover that I do need and then clear half the mortgage after a year then it's surely my own responsibility to rearrange my _MPLA _cover if necessary? After all the _MPLA _premiums are set up front based on amount covered, term etc. so it's not profiteering if circumstances change but I don't tell the _MPLA _provider or lender.


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## gd2000 (21 Feb 2007)

Regarding prudence - the primary obligation is on the institution (although consumers are advised to ensure that their cover is sufficient).  Hence a prudent interest rate assumption.

All I'm saying is that in the case where a mortgage is paid off early then a company is taking money for cover they are not providing (as per their own terms and conditions).  I can imagine that while the consumer has some responsibility (for the admin costs incurred), they may be entitiled to a refund of the mortality charge.

I agree that it's not profiteering if the provider isn't told - but it may be profiteering to not refund the mortality charge after they are told.  TCF (Treating Customers Fairly) is a relatively new concept to insurance and I'd expect that a "reasonably informed" individual may consider such actions by an institution to be in breach of TCF.

I should maybe state that I have a great deal of in-depth experience in the area of insurance!

I'm not saying that my suggestion is definitely correct - I do however, think that there may be a reasonable case.  As I said - the FR is probably best to provide guidance.


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## Zed (21 Feb 2007)

Thanks for all the replies, 

I did not transfer the mortgage. The mortgage for which the policy in question protected was cleared.  I did take out a mortgage protection policy with my new mortgage (as it happens with the same company via a broker) The insurance companys line is pretty much what Clubman said  "i.e. if you had died then they would have paid out a lump sum to your estate and not the lender"   .  I called them earlier today and the CSR said there was no other interest i.e bank or building society, noted on the policy. I will call the  Financial Regulator for their view.


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## RS2K (21 Feb 2007)

No chance of a refund I'm afraid. The insurer was on risk at all times. The fact that the o.p. had paid off the mortgage is not relevant.

Had the policyholder died after the loan was repaid, the proceeds of the policy would have formed part of his/her estate.

The error was the O.P's for not cancelling the policy and ending the cover.

A mortgage (a loan secured on property) and a mortgage protection policy (life assurance) are not one and the same. The lender takes an assignment of the policy to protect their interest.


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## PM1234 (21 Feb 2007)

A very interesting thread. 



RS2K said:


> Had the policyholder died after the loan was repaid, the proceeds of the policy would have formed part of his/her estate


 
Doesn't it depend on the type of policy? If it was a basic mortgage protection (OP will need to check the T&Cs), regardless of a surplus sum assured, the payout will only be the outstanding mortgage amount.


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## ClubMan (21 Feb 2007)

PM1234 said:


> If it was a basic mortgage protection (OP will need to check the T&Cs), regardless of a surplus sum assured, the payout will only be the outstanding mortgage amount.


Not necessarily - see the thread that I linked earlier that suggests that some or all decreasing term policies decrease the sum covered using some assumed interest rate which may not match actual rates and will not reflect any accelerated capital repayments on the mortgage sum hence there could be an excess even after the mortgage is cleared.


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## gd2000 (21 Feb 2007)

Having been responsible for calculating and setting the prices for these type of policies a number of years ago, I can say categorically, that there was at least one product on the market where early repayment of a mortgage (therefore requiring a lower sum assured by the policyholder) would have meant a lower sum-at-risk as the company did *not* pay out any more than the amount required to clear the mortgage (as per the T&C of that policy)

A payment to the estate may have been possible as a gesture of goodwill.

That is not to say that all products are like this.  It is perfectly possible that a company may have elected to pay out the surplus to the estate (which would be quite fair!).  I would then expect that to be written into the T&C.


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## gd2000 (21 Feb 2007)

Clubman,

As I said before - that policy is a prudent pricing policy as required by the regulator.  It wholly differs to the situation of once-off voluntary capital repayments.


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## ClubMan (21 Feb 2007)

gd2000 said:


> that policy is a prudent pricing policy as required by the regulator.


What policy?  


> It wholly differs to the situation of once-off voluntary capital repayments.


Again I don't really understand what you mean.


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## gd2000 (21 Feb 2007)

Apologies - I sometimes don't explain myself very clearly!

The policy is one requiring the protection policy to be priced at a higher interest rate than the mortgage is at. It allows for the possibility that a mortgage holder may skip mortgage payments or go into arrears briefly.

The regulator requires this higher interest rate to attempt to make sure that under reasonable circumstances, the average policy holder still has sufficient cover (although the policy holder should still make sure this is the case).

It is also imprudent for the company to assume in their pricing basis that a certain percentage of early repayments will be made, as these are highly uncertain.


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## ClubMan (21 Feb 2007)

But these technicalities surely have little or nothing to do with the basic issues here - namely that some people (including myself and _RS2K_) believe that (a) the policy was still a valid _LA _policy once the mortgage was cleared (b) it was up to the individual to cancel it (c) the policy would have paid out the sum assured at that point in time if s/he had died while it was in place even if the mortgage was cleared and (d) that in all likelyhood the individual is not entitled to a refund since s/he was covered all the time for some decreasing amount?


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## gd2000 (21 Feb 2007)

As I've said before...

You, RS2k and I can all have our opinions.  The T&C of the actual policy will say what the reality is.

All I was trying to say was that there are reasonable circumstances where a refund may be applicable.


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## RS2K (21 Feb 2007)

I cannot agree. 

Premiums are payable to cover a risk, in this instance the risk that the policyholder might have died. Had that happened the remaining sum assured, would have been payable to his/her estate.

Try taking out travel insurance for example, and asking for a refund in the event of you having no claim whilst you were on holiday


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## ClubMan (21 Feb 2007)

_Zed _- let us know how you get on pursuing this issue with the underwriter and, if it comes to it, _IFSRA _or the _FSO_. I very much doubt that you will get a refund. Post the relevant portions of the governing terms & conditions if you think there's any point.


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## HighFlier (21 Feb 2007)

I seem to recall an almost identical issue posted by someone a few months ago and I dont think any satisfactory solution was achieved in that case?


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## ClubMan (21 Feb 2007)

You're not thinking of this one (about repayment insurance) by any chance?

Payment protection on mortages. Refund due?


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## HighFlier (22 Feb 2007)

No Clubman there was another. I'll search when I get a chance.


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## gd2000 (22 Feb 2007)

RS2K,

You may well be right - I was never arguing that a refund is definitely due.  It all boils down to whether under the T&C the company was exposed to a mortality risk.

TBH I don't see how anyone here can opine on the validity of a claim for a refund when they haven't read the T&C.  No one (except the OP) knows which company it is with (it could even be a cross border company).

To suggest that there is categorically on chance is (IMO) unhelpful.  To suggest that it may be worth following up with an independent resouce will mean the OP has exhausted all reasonable options and should feel more comfortable with the outcome - no matter what it is.


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## RS2K (22 Feb 2007)

Understood. Fairly argued too.

The insurer was clearly never advised cease risk however. 

We'll just have to see what happens....


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