Should we have been advised about potential shortfall on mortgage protection policy?

Our mortgage is with AIB and through them we put in place a mortgage protection policy through Ark Life. In later years due to financial hardship we were paying interest only or reduced payments for some years. It probably should have been apparent to us that the Ark Life policy would result in a shortfall in the event of the death of a policy holder but it wasn't. Now the unexpected death of my husband has resulted in the shortfall becoming apparent. My question is that given the reciprocal nature of the products should we not have been officially informed of the need to address this issue when our mortgage payments were restructured? Are there any guidelines in existence that make this explicit?

Very sorry for your loss Some Day.

Unfortunately I see no recourse for you. The initial mortgage protection (life) would be based on the mortgage amount and based on that amount decreasing annually (known as term insurance). It is a compulsory insurance. To protect the borrowers in the event of death.

Because you experienced financial difficulties your bank came to an arrangment with you to reduce the mortgage, so no capital was being repaid and therefore your mortgage was not reducing, but your life insurance payout would still be reducing in line with the original terms and conditions of the mortgage. The two products, mortgage and life insurance are not linked. But you must have life insurance to get a home mortgage.

In essence you would have needed to take out a new additional policy to cover the shortfall, or cancel the existing policy and get one to cover the changed circumstances. I doubt very much that you could have afforded an extra cost.

Now whether the bank should have informed you, well I think it should be bank policy but I'm guessing everybody, you and the bank were just focused on saving your house.

It may be something going forward that this insurance aspect was not looked at properly and indeed people cancelled their insurance altogether to save costs.

Despite what I've posted, I think it is worth a try appealing to the your bank. Is the shortfall much?

Another point, and you did not ask it. Would it be better for you to receive the insurance monies and continue to pay the mortgage? That may sometimes be an option, with the banks agreement.

In any case surely the bank is not actually looking to you to stump up the shortfall, rather they just reduce your mortgage amount by the insurance cheque and you continue paying a lower mortgage?

I agree with Bronte, very sorry for your predicament now but even if you had been advised it would have necessitated increasing your level of cover with additional cost so if you were already in financial difficulties you may not have been able to afford the extra. At least there is some level of cover in place, many people have had to let their insurance policies lapse due to lack of funds and have ended up owing the lot. The best solution is to get the bank to restructure the shortfall into as manageable a term and repayment as possible, if you have any other funds perhaps they would accept a reduced lump sum?

Under MARP there is an agreed format for letters being sent out to clients where a revised repayment agreement is accepted. The positives and negatives of accepting the revised agreement must be stated on those letters. One of the negatives which should be explicitly stated is the warning that the arrangement will affect the cover provided by any existing mortgage protection plan and that the client should adjust the cover accordingly. It is likely that this was included on any correspondence issued. However if you don't have copies of correspondence received you can complete a data access request and send this to the Bank with the appropriate €6 fee. This will result in the bank sending you copies of all paperwork relevant to your case. You can then see whether the point was included on the letters issued to you.

Thanks for the replies. The original restructuring to interest only would have predated the Marp. Subsequent restructuring to interest plus would possibly have come under MARP so I will investigate that correspondence further. My initial hope was that the bank would accept the lump sum which Ark Life had assigned to me personally and write of the remaining thirty five to forty thousand euro. They have refused and instead want me to restructure the payments for the balance. I will be appealing that decision and wondered if I should include the lack of advice around the Ark Life policy in my appeal.

Bronte your question regarding me hanging on to the money is one I hadn't considered. I'll have to think some more about the pros and cons of that one.

Might not be an option, if the policy is assigned to AIB then they will get the funds.

Bronte your question regarding me hanging on to the money is one I hadn't considered. I'll have to think some more about the pros and cons of that one.

Monbretia said:

Might not be an option, if the policy is assigned to AIB then they will get the funds.

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The policy is assigned to me.

Some Day I realise it must be a very stressful time but you must sit down and take the time to work all this out. Maybe talking to someobdy about your options would be a good idea. Alternatively you can post all your financial details on here and what you hope to achieve. At the very least it will give you some ideas.

For example could you continue to pay the current mortgage or do you want to be mortgage free. You absolutely need to know your rights in relation to the mortgage life policy. It might be a good idea to repay part of the mortgage, keep a reduced mortgage, pay off other bills, have a rainy day fund, rather than just paying off the full amount of the settlement cheque.

You mentioned the bank said 'restructure the payments for the balance'. So I presume this means they will take the 40K owing and allow you to repay it over the current term and with the current interest rate.

My view is that you will be wasting your time asking for a W/O of the balance of the mortgage. Banks will not do that and release the security they have over the property. Depending on your financial circumstances you have the option of requesting a restructure of the balance owing within your capacity to meet repayments or alternatively if you can get family help in putting a lump sum together, to offer this in full settlement. Any success will be dependent on your financial position. If you are in a position to afford the loan repayments over a reasonable term, I see no real chance of achieving any element of W/O.
It would be unusual if the MPP is not assigned to the Bank. It will not be assigned to you as in all probability it is a joint life policy. However if it is not assigned to the bank and you use the funds as a negotiating ploy, you are more than likely creating an immediate conflict with the bank and I can't see any bank giving in to this type of stance.