# When must one buy life insurance when purchasing first property



## Babstar (17 Aug 2006)

Hi,
I am hoping someone can help with with a question which has probably been asked before. My husband and I are in the process of purchasing our first home. Our mortgage broker also looks after the insurance but I am just not sured that I am being offered the best rate. we feel a bit pushed in making this decision as we've been told that we will not get the loan if this is not in place.

When must one have the insurance in place?

Also there seems to be conflicting opinions as to whether a mortgage protection will suffice to close a loan deal or if life insurance is needed.

can anyone shed any light on this at all?

Thanks, Barbara


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## ClubMan (17 Aug 2006)

Babstar said:


> When must one have the insurance in place?


From the day that the mortgage cheque is drawn down at the latest. Most providers will allow you to say when the policy takes effect. When you know when you will be drawing down the mortgage have the policy start from 00:00 on that day or maybe a couple of days before just to be sure (in case your lender wants proof of cover in advance).


> Also there seems to be conflicting opinions as to whether a mortgage protection will suffice to close a loan deal or if life insurance is needed.


What do you mean? Mortgage protection *is *a form of life assurance. Are you talking about something else here like mortgage repayment insurance or something? Have you read this thread - oh, and shop around for mortgage protection life assurance and don't just take it automatically from the lender.

Mortgage Protection and Mortgage Repayment Protection Policies


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## theboyeamo (18 Aug 2006)

Usually you mortgage company will request 2 policies. Firstly a standard insurance policy to cover the building in case it burns down etc otherwise they would lose the money forearded to you.
Also they look for a mortgage protection policy which will payoff the balance of the loan in the event of you being unable to repay your mortgage due to serious illness/death etc. hope this helps


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## ClubMan (18 Aug 2006)

theboyeamo said:


> Usually you mortgage company will request 2 policies. Firstly a standard insurance policy to cover the building in case it burns down etc otherwise they would lose the money forearded to you.


Yes - but that has nothing to do with the original query which was specifically about _MPLA _as far as I can see.


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## bigchicken (22 Aug 2006)

Mortgage Protection Insurance is what is required by the bank in order to secure the loan. While there are various options that you get added it, at its minimum it effectively just protects the bank if something was to happen to you. It is specific to your mortgage so if you don't have a mortgage then you don't need mortgage protection insurance.

Life assurance is there to protect you and your family. You can have life assurance in place even if you don't have a mortgage. Most insurers offer various options on their MPI policies which effectively make them life assurance policies.

With regards to the mortgage company - i found that my broker was trying to push one particular insurance company on me as well. I refused and got much better quotes elsewhere.


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## ClubMan (22 Aug 2006)

bigchicken said:


> it effectively just protects the bank if something was to happen to you.


It also protects your next of kin from having to worry about mortgage repayments and the possibility of having to sell if they cannot be met in the event of your death.


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## bond-007 (23 Aug 2006)

What happens if you are refused for life insurance?


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## ClubMan (23 Aug 2006)

See this thread:

MS and life assur/mort protection

Under the _CCA _the lender is allowed to waive the normal requirement for _MPLA_ on an owner occupier's _PPR _mortgage if this happens. They are not obliged to do so though. And there is obviously a risk involved to the borrower especially if they have next of kin who might be lumbered with an unmanageable mortgage on their _PPR _and might have to sell if the mortgage holder dies.


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## ClubMan (23 Aug 2006)

Sorry - I inadvertently deleted a post from somebody else (_bigchicken_ I think) asking if one had no _MPLA _and died would the lender get the house. I don't think that this is the case and believe that the house passes to your next of kin who would then be added to the deeds/mortgage and would have to meet the mortgage repayments. I don't think that it's a case of the lender necessarily just taking the property.


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## bond-007 (23 Aug 2006)

ClubMan said:


> See this thread:
> 
> MS and life assur/mort protection
> 
> Under the _CCA _the lender is allowed to waive the normal requirement for _MPLA_ on an owner occupier's _PPR _mortgage if this happens. They are not obliged to do so though. And there is obviously a risk involved to the borrower especially if they have next of kin who might be lumbered with an unmanageable mortgage on their _PPR _and might have to sell if the mortgage holder dies.


Thanks for that Clubman. I assume you can sign some sort of a wavier acknowledging the risks involved?


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## ClubMan (23 Aug 2006)

bond-007 said:


> Thanks for that Clubman. I assume you can sign some sort of a wavier acknowledging the risks involved?


I don't understand what you mean. Sign such a waiver for whom? Basically if the borrower can't get any or "affordable" cover then the lender may (under the _CCA_) waive the normal requirement for it and then it's up to the borrower to accept the risk or not.


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## CCOVICH (23 Aug 2006)

ClubMan said:


> Sorry - I inadvertently deleted a post from somebody else (_bigchicken_ I think) asking if one had no _MPLA _and died would the lender get the house. I don't think that this is the case and believe that the house passes to your next of kin who would then be added to the deeds/mortgage and would have to meet the mortgage repayments. I don't think that it's a case of the lender necessarily just taking the property.



If I recall correctly, _bigchicken_ was asking what if you died and had no next of kin, or nobody you wanted to leave the property to in your will? Why would you bother with life cover?

To answer _bigchicken's _question, I'm pretty sure lenders would rather receive payment under a life policy than having a property to sell should the borrower die during the term of the mortgage. But in any case, where there are no dependents, I would imagine that life cover would be waived without too much hassle.


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## ClubMan (23 Aug 2006)

CCOVICH said:


> But in any case, where ther are no dependents, I would imagine that life cover would be waived without too much hassle.


Not according to the [broken link removed] which states that other than in specific limited cirucmstances _MPLA _is a legal requirement for owner occupier _PPR _mortgages. Those specific limited circumstances do not include the owner occupier not having any dependents.


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## CCOVICH (24 Aug 2006)

ClubMan said:


> Not according to the [broken link removed] which states that other than in specific limited cirucmstances _MPLA _is a legal requirement for owner occupier _PPR _mortgages. Those specific limited circumstances do not include the owner occupier not having any dependents.


 
Apologies, I had thought there was something in the CCA about 'family home' or 'dependents' but I must have been thinking of something else.

So, as a matter of interest, does anyone know what is the rationale (from a borrower's point of view) of having life cover in place (to cover a mortgage), assuming they don't have any next of kin/dependents that would benefit in the event of their death?


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## liteweight (24 Aug 2006)

I can't see any rationale, from the borrower's point of view, in the above scenario.

If the borrower dies with no dependents and no will, probate will take much longer and , in the event of no long lost relatives being found, the State gets the property AFAIK. I imagine the lender is then engaged in a long drawn out affair. I'm sure they get their share before the Gov. gets it all, but a MPLA is probably paid out on proof of death. Much cleaner for the lender!

As an aside, it is possible to negotiate with insurance company to transfer funds from MPLA to ordinary life assurance once mortgage is paid off.


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## bigchicken (24 Aug 2006)

If I'm reading this correctly


Then when someone dies the creditor (in this case the bank) can bring a claim against the estate for the debt.

So if the deceased has no next of kin, the bank can presumably reclaim the house to cover the debt....
I assume that the mortgage protection is required to make all this a much more straighforward process for the bank rather than to simply ensure they get their money as it seems that they would regardless.


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## ClubMan (24 Aug 2006)

CCOVICH said:


> So, as a matter of interest, does anyone know what is the rationale (from a borrower's point of view) of having life cover in place (to cover a mortgage), assuming they don't have any next of kin/dependents that would benefit in the event of their death?


None.  But I suppose whatever about having no dependents having absolutely no next of kin would be quite unusual.


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## Smi1er (31 Aug 2006)

Lets get this right.....

Any mortgage Co that insists on insurance isn't doing it for your benefit. They are doing it for their own.

Insisting of a Life Policy is plain daft. This should be up to the individual surely!

If you are being steered towards a certain company then my guess would be is that the Mortgage Co is getting a larger commission from them.


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## ClubMan (31 Aug 2006)

Smi1er said:


> Any mortgage Co that insists on insurance isn't doing it for your benefit. They are doing it for their own.


I disagree. It's also to the benefit of any next of kin/dependents that the mortgage holder has _MPLA_.


> Insisting of a Life Policy is plain daft. This should be up to the individual surely!


If you think so then lobbby your elected representatives to change the law (_Consumer Credit Act_) which makes _MPLA _for owner occupiers mandatory in the vast majority of cases.


> If you are being steered towards a certain company then my guess would be is that the Mortgage Co is getting a larger commission from them.


Linking financial products is illegal so while it's possible that lenders might suggest a particular source for _MPLA _they cannot insist that you buy from them and you are free to shop around independently. As ever don't expect independent advice from tied agents or those with a vested interest in selling you something. Caveat emptor.


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