Joint mortgage. Mortgage protection query

spinning_plates

New Member
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2
Bought a house with a good friend.

Joint Mortgage Split was 2/3rd me and 1/3 friend.

Mortgage protection (Total Life insurance) total cost €30 per month. This is the type that the cover decreases over the lifetime of the mortgage. If you overpay the mortgage, the policy is still based off the original expected lifetime of the mortgage.

Purpose of the cover is, if in the untimely death of one us the the remaining sum on the policy would be paid out to remaining mortgage holder to pay off the mortgage. There would be additional monies paid out as the mortgage has been overpaid and is "ahead" of the protection policy schedule.

We have split all costs and income of furnishings 2/3rds to 1/3rd all the way through including management fees and rental income etc.

At the time of taking out the policy, we didnt really think about it but have been paying the mortgage protection policy payments 50/50.

Should the mortgage protection policy have been split 2/3rds to 1/3rd also??
 

Brendan Burgess

Founder
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39,671
A very interesting question and I don't know the answer.

Forget the house for the moment and look at the life insurance only.

Assume John took out €200k life insurance on Mary's life. He should pay for that.

And Mary took out €100k life insurance on John's life, she should pay for that.

But if Mary dies, John will get €300k as it's a joint policy.

So I think it should be split 50/50

Brendan
 

spinning_plates

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Thanks for your response.

I just want to add some additional Information to complicate and challenge your example above.

We both now are no longer living in the premises and are married with our own families.

If one of us died then the other, on receipt of the protection policy would pay the remaining off the house and any remaining surplus of the policy would be distributed 2/3rds to 1/3rd between the remaining owner and the deceaseds wife.

The house would then be sold with the proceeds distributed 2/3rds to 1/3rd between the remaining owner and the deceaseds wife.

Does that additional information change your above position in any way?

(Lets ignore how the revenue would view the inheritance between a "stranger" and the deceased wife as it just add further complication.)

Side question:From an insurance company perspective do you think they would require payment of a joint policy to be made by both customers or would they care if the payment was made in totality by only one of the joint customers?
 

Brendan Burgess

Founder
Messages
39,671
Let's look at it again.

JohnMary
House value€300k€100k
Mortgage€140k€70k
Equity€ 60k€30k

For simplicity assume that there is no surplus and that the policy clears the mortgage.

I assume that if John dies, that John's wife will get €200k from the proceeds of the sale of the house.

If Mary dies, then Mary's wife will get €100k .

So in the event of a claim on the policy, John's equity increases by €140k and Mary's by €70k.

Right. I am changing my my initial view.

John should pay 2/3rds of the premium as he gets twice the benefit that Mary does.

Brendan
 

Duke of Marmalade

Frequent Poster
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2,534
It is an interesting question. I would need a bit more clarifications to reply in full.
Essentially with a joint policy there are three separate joint considerations.
(a) Who is covered and in what proportions.
(b) Who owns the policy and in what proportions.
(c) Who pays the premiums and in what proportions.
Lets us deal with (c) first. It doesn't matter who pays the premiums in so far as affecting the first two questions.
The more usual situation is that they are equally covered and have equal ownership. This is spelt out in the policy documentation and is independent of any understanding between the parties. In a sense this is over insurance as the survivor will be freed of all future payments even though they may be able to afford, say, half of that amount.
In the case of OP there does not seem to be a legal relationship between the parties so I am unsure how the policy documentation was written.
The key question is (b). It is the owner of the policy who gets the benefit. Normally if there is joint ownership between a married couple for example then full ownership naturally goes to the survivor. I am not sure how that would work were there is no legal relationship between the joint owners.
Any understanding of a 2/3rd 1/3rds split would seem to be a private matter unless somehow the policy documentation reflects this, which would be most unusual.
 
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