Hi McGef,
Just a couple of points for you. Technically, your new lender is correct in saying that you might have to take out a new policy as your existing one is part of a group policy, however the insurance company that currently provides the group cover may provide you with a seperate, stand alone policy without too much difficulty.
In the event that you do have to move from one life assurance company to another - if one has already provided you with cover, albeit loaded/rated, then you should have no problem in getting cover from another. In the highly unlikely event that absolutely no life assurance company in the country will insure you, you can always ask your new lender to allow you to sign a life cover waiver. Whilst this is far from ideal and is not automatically a right, most lenders will agree to it if you are a) over 50 years of age, b) the property in question is not your family home or most likely in your case - c) you have been heavily rated or declined by all insurance companies. The obvious drawback of this situation is that if you were to die during the mortgage term, your mortgage would not be cleared and the debt would be passed on in full to your estate.
It's not a great position to be in, but I wouldn't worry about it too much... where theres a will, theres a way! Let me know if I can help you with any of it.
Brian.